SINOPEC Engineering (Group) Co., Ltd.

2386

CNE100001NV2

Construction & Engineering

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04-24	Sinopec Engineering Co., Ltd. Announces Board Changes	CI
04-15	Sinopec Engineering Co., Ltd. Announces New Contract Value and Backlog	CI

SINOPEC Engineering : 2020 ANNUAL REPORT

March 21, 2021 at 10:11 am

Stock Code: 2386

EnginEEring a BEttEr World

2020 AnnuAl RepoRt

IMPORTANT NOTICE

The board of directors (the "Board") and the directors (the "Directors") of SINOPEC ENGINEERING (GROUP) CO., LTD.

("SINOPEC SEG" or the "Company") warrant that there are no false representations, misleading statements or material omissions contained in this annual report and are hereby jointly and severally liable for the authenticity, accuracy and completeness of the content hereof. The Director, Mr. WU Wenxin could not attend the Fifteenth Meeting of the Third Session of the Board (the "Meeting") due to official duties.

The Director, Mr. WU Wenxin authorised the Director, Mdm.

SUN Lili, to attend the Meeting, and to vote on his behalf.

Mdm. SUN Lili (Chairwoman of the Board), Mr. JIANG Dejun (Director and President), Mr. JIA Yiqun (Chief Financial Officer) and Mr. WANG Yi (head of the finance department) warrant the authenticity and completeness of the financial statements contained in this annual report.

The annual ﬁnancial statements as at 31 December 2020 (the "Reporting Period") of SINOPEC SEG and its subsidiaries (the "Group"), prepared in accordance with the International Financial Reporting Standards, were audited by BDO Limited, which has issued a standard unqualiﬁed audit report.

This annual report contains forward-looking statements.

All statements (other than statements of historical facts) that address business activities, events or developments that the Company expects or anticipates will or may occur in the future (including but not limited to projections, goals, estimates and business plans) are forward-looking statements. The future actual results or development trends may differ materially from those indicated by the forward-looking statements due to various factors. The forward-looking statements contained in this annual report were made by the Company as at 22 March 2021 and, unless otherwise required by the relevant regulatory authorities, the Company undertakes no obligation or responsibility to update these statements.

CONTENTS

COMPANY PROFILE 5

BASIC INFORMATION OF THE COMPANY 6

PRINCIPAL FINANCIAL DATA AND INDICATORS 8

CHANGES IN SHARE CAPITAL AND 12

SHAREHOLDINGS OF SUBSTANTIAL SHAREHOLDERS

CHAIRWOMAN'S STATEMENT 17

BUSINESS REVIEW AND PROSPECTS 21

MANAGEMENT'S DISCUSSION AND ANALYSIS 34

SIGNIFICANT EVENTS 60

CORPORATE GOVERNANCE 71

REPORT OF THE BOARD 87

REPORT OF THE SUPERVISORY COMMITTEE 102

DIRECTORS, SUPERVISORS, OTHER 106

MEMBERS OF SENIOR MANAGEMENT

AND EMPLOYEES

FINANCIAL STATEMENTS 120

DOCUMENTS FOR INSPECTION 204

COMPANY PROFILE

The Group is a leading energy and chemical engineering company in the PRC with strong international competitiveness and can provide domestic and overseas clients with overall solutions for petrol reﬁning, petrochemicals, aromatics, coal chemicals, inorganic chemicals, pharmaceutical chemicals, clean energy, storage and transportation facilities, environmental protection and energy saving, among other industry sectors. The Group is an integrated service provider for the whole industry chain and the whole life cycle in energy and chemical industry and can provide overall industry chain services including engineering consulting, technology licensing, project management contracting, ﬁnancing assistance, EPC (engineering, procurement and construction) contracting, as well as design, procurement, construction and installation, lifting and transportation of large equipment, pre-commissioning and start-up.

After nearly 70 years of continuous development, the Group currently has an academician of the Chinese Academy of Sciences, three academicians of the Chinese Academy of Engineering and more than 10,000 professionals. The Group has rich project management and implementation experience, and owns and cooperatively owns patents and know-how in core business areas. The Group has delivered on schedule hundreds of modern factories with enormous investment, complicated process, advanced technology and high quality to clients in more than 20 countries and regions around the world, established long-term and steady cooperative relationships with large energy and chemical enterprises at home and abroad, maintained an extensive and stable client base, and enjoys remarkable industrial influence and social reputation.

In the future, adhering to the development orientation

of "Integrated Service Provider with Whole Industry

Chain and Whole Life Cycle in Energy and

Chemical Industry", the Group will base itself

on the energy and chemical engineering

construction industry, continuously broaden

its business scope and extend its value

chain, comprehensively improve the

level of safe, efficient, green and low-

carbon service in the business chain

through "differentiated development,

international operation, digital

transformation and intelligent

upgrading", and create a new

momentum in achieving the

corporate vision of "building

the world's leading

technology-oriented

engineering company".

BASIC INFORMATION OF THE COMPANY

LEGAL NAME	REGISTERED ADDRESS
ʕͩʷ๪ʷʈ೻（ණྠ ）ٰ΅Ϟࠢʮ̡	Building 8, Shenggujiayuan, Shenggu Middle Road, Chaoyang
District, Beijing, the PRC
CHINESE ABBREVIATION
CORRESPONDENCE ADDRESS
ʕͩʷ๪ʷʈ೻
Building 8, Shenggujiayuan, Shenggu Middle Road, Chaoyang
District, Beijing, the PRC
ENGLISH NAME
SINOPEC ENGINEERING (GROUP) CO., LTD.	Postcode: 100029
Tel: +8610-5673-0522
ENGLISH ABBREVIATION
Website:www.segroup.cn
SINOPEC SEG
E-mail:seg.ir@sinopec.com
LEGAL REPRESENTATIVE
WEBSITES ON WHICH THIS
Mdm. SUN Lili
ANNUAL REPORT IS PUBLISHED
AUTHORISED REPRESENTATIVES	Website designated by The Stock Exchange of Hong Kong
Mr. JIANG Dejun	Limited (the "Hong Kong Stock Exchange"):
http://www.hkex.com.hk
Mr. JIA Yiqun
The Company's website:
COMPANY SECRETARY
http://www.segroup.cn
Mr. JIA Yiqun

PLACE WHERE THIS ANNUAL REPORT IS AVAILABLE FOR INSPECTION

Company Office (Office of the Board)

SINOPEC ENGINEERING (GROUP) CO., LTD.

Building 8, Shenggujiayuan, Shenggu Middle Road,

Chaoyang District, Beijing, the PRC

PLACE OF LISTING OF SHARES, STOCK NAME AND STOCK CODE

H Shares: Hong Kong Stock Exchange

Stock name: SINOPEC SEG

Stock code: 2386

UNIFORM SOCIAL CREDIT CODE 911100007109349087

NAMES AND ADDRESSES OF AUDITORS

PRC:

BDO China Shu Lun Pan Certiﬁed Public Accountants LLP

Room 1410, Fanli Building,

No. 22 Chaoyangmenwai Street, Chaoyang District

Beijing, the PRC

Overseas:

BDO Limited

25th Floor, Wing On Centre, 111 Connaught Road Central,

Hong Kong

NAME AND ADDRESS OF LEGAL ADVISORS

PRC:

Beijing King & Wood Mallesons

17th-18th Floor, East Tower, World Financial Center,

1 Dongsanhuan Zhonglu, Chaoyang District, Beijing

Hong Kong:

Kirkland & Ellis

26th Floor, Gloucester Tower, The Landmark,

15 Queen's Road Central, Hong Kong

PRINCIPAL FINANCIAL DATA AND INDICATORS

Principal Financial Data and Indicators

Summary of Financial Data and Indicators Prepared in Accordance with International Financial Reporting Standards ("IFRS")

Unit: RMB' 000

Items

Non-current assets

Current assets

Current liabilities

Non-current liabilities

Consolidated equity attributable to equity holders of the Company

Net assets per share of equity holders of the Company (RMB)

Year ended 31 December

31 DecemberAs at

2016

Changes from the end of 2019 (%)

7,871,988

2.1

51,016,799

5.7

30,724,440

7.6

2,899,238

(9.8)

25,261,201

3.6

5.70

3.6

Unit: RMB' 000

Changes over the same period of

Items

Revenue

Gross pro t

Operating pro t

Pro t before taxation

Pro t attributable to equity holders of the Company

Basic earnings per share (RMB)

Net cash ow generated from operating activities

Net cash ow generated from operating activities per share (RMB)

2020

2019

2018

2017

2016

2019 (%)

Year ended 31 December

Items	2020	2019	2018	2017	2016
Gross pro t margin (%)	10.9	10.5	11.0	11.1	10.9
Net pro t margin (%)	4.6	4.2	3.6	3.1	4.2
Return on assets (%) (1)	3.4	3.1	2.6	1.9	2.8
As at	As at	As at	As at	As at
31 December	31 December	31 December	31 December	31 December
Items	2020	2019	2018	2017	2016
Asset-liability ratio (%) (2)	60.5	59.8	63.3	56.9	57.1
Notes:
Proﬁt for the year

(1) Return on assets =
(2) Asset-liability ratio =

(Opening balance of total assets + Closing balance of total assets)/2

Total liabilities as at the end of the yearTotal assets as at the end of the year

CHANGES IN SHARE CAPITAL AND SHAREHOLDINGS

OF SUBSTANTIAL SHAREHOLDERS

Changes in Share Capital and Shareholdings of Substantial Shareholders

1 Changes in the Share Capital of the Company

Unit: Share

As at 31 December 2019	Increase/Decrease during the Reporting Period (+, -)	As at 31 December 2020
Number	Percentage (%)	New shares issued	Others	Subtotal	Number	Percentage (%)

Promoter shares (Domestic Shares)	2,967,200,000	67.01	-	-	-	2,967,200,000	67.01
Foreign shares listed overseas (H Shares)	1,460,800,000	32.99	-	-	-	1,460,800,000	32.99
Total number of shares	4,428,000,000	100.00	-	-	-	4,428,000,000	100.00

2 Shareholdings of Substantial Shareholders

As at the end of the Reporting Period, there were a total of 937 shareholders of the Company. As at 22 March 2021, the public float of the Company satisfied the minimum requirements under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Hong Kong Listing Rules") according to the information publicly available to the Company and to the knowledge of the Directors.

(1) Shareholdings of the top ten shareholders

Unit: Share

Name of Shareholders

Increase/ Decrease during the Reporting Period (+, -)

Number of

Domestic Shares held as at the end of the Reporting

Period

Number of H Shares held as at the end of the Reporting Period

Percentage as at the end of the Reporting Period

In total share capital

(%)

In relevant class of shares

(%)

China Petrochemical Corporation (1)	0	2,967,200,000	-	67.01	100.00
HKSCC NOMINEES LIMITED	-23,104,550	-	1,433,335,289	32.37	98.12
TANG KEUNG LAM	+20,000,000	-	20,000,000	0.45	1.37
ZHANG SAIYU	+1,600,000	-	3,600,000	0.08	0.25
HUI MO CHEE	+5,000,000	-	500,000	0.01	0.03
POON MING YAU	+310,000	-	310,000	0.01	0.02
WONG CHOK SHUN	+300,000	-	300,000	0.01	0.02
WONG CHUI CHUNG	0	-	295,000	0.01	0.02
HUI SIU SHUN WAN	+200,000	-	200,000	0.00	0.01
CHAN LAI KUEN SELINA	0	-	195,000	0.00	0.01
WONG CHUI CHUNG	0	-	195,500	0.00	0.01
Statement on the connected relationship or
acting in concert among or between the
aforementioned shareholders

The Company is not aware of any connection or acting in concert among or between the aforementioned top ten shareholders

(2) Information disclosed according to the Securities and Futures Ordinance

In accordance with the archiving notice submitted through Disclosure of Interests Online System, save as the information disclosed below, as at the end of the Reporting Period, to the knowledge of the Board, no person(s) (other than a Director, chief executive of the Company or supervisor of the Company (the "Supervisor")) had an interest or short position in the shares or underlying shares or debentures of the Company which would fall to be disclosed under the provisions of Divisions 2 and 3 of Part XV of the Securities and Futures Ordinance (the "SFO") or, who was, directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying the rights to vote in all circumstances at general meetings of the Company:

Name of Shareholders

Class of share

Capacity

Number of shares with interests held or regarded as being held (Share)Percentage in shares of the Company of the same class (%)(7)Percentage in the total share capital of the Company (%)(8)

China Petrochemical Corporation (1)

Domestic Share

Beneﬁcial owner/Interests of controlled corporation

2,967,200,000 (L)

100.00 (L)

67.01 (L)

JPMorgan Chase & Co. (2)

H Share

Interests of controlled corporation/Investment manager/Persons having a security interest in shares/

109,684,166 (L)

7.50 (L)

2.48 (L)

10,767,087 (S)

0.73 (S)

0.24 (S)

Approved lending agent

68,560,091 (P)

4.69 (P)

1.54 (P)

Interests of controlled

Pandanus Associates Inc. (3)

H Share

corporation

103,552,853 (L)

7.09 (L)

2.34 (L)

Interests of controlled

Pandanus Partners L.P. (3)

H Share

corporation

103,552,853 (L)

7.09 (L)

2.34 (L)

Interests of controlled

FIL Limited (3)

H Share

corporation

103,552,853 (L)

7.09 (L)

2.34 (L)

Eastspring Investments (4)

H Share

Beneﬁcial owner

88,261,500 (L)

6.04 (L)

1.99 (L)

Prudential plc (5)

H Share

Interests of controlled corporation

114,774,000 (L)

7.85 (L)

2.59 (L)

102,321,779 (L)

7.00 (L)

2.31 (L)

Brown Brothers Harriman & Co. (6)

H Share

Agent

102,321,779 (P)

7.00 (P)

2.31 (P)

Notes: (L): long position; (S): short position; (P): lending pool.

Notes:

(1) China Petrochemical Corporation ("Sinopec Group") directly and/or indirectly holds 2,967,200,000 domestic shares of the Company ("Domestic Shares"), representing 100% of the Domestic Shares and approximately 67.01% of the total share capital of the Company, respectively. Sinopec Assets Management Co., Ltd. is a wholly-owned subsidiary of Sinopec Group and directly holds 59,344,000 Domestic Shares, representing 2.00% of the Domestic Shares and approximately 1.34% of the total share capital of the Company, respectively. For the purposes of the SFO, Sinopec Group is also deemed to be interested in the Domestic Shares held by Sinopec Assets Management Co., Ltd.
(2) The information is based on the Corporate Substantial Shareholders Notice dated 7 December 2020 and ﬁled by JPMorgan Chase & Co. with the Hong Kong Stock Exchange.
(3) The information is based on the Corporate Substantial Shareholders Notices dated 26 November 2020 and ﬁled by Pandanus Associates Inc., Pandanus Partners L.P. and FIL Limited with the Hong Kong Stock Exchange. According to these notices, Pandanus Associates Inc. holds 100% interest in Pandanus Partners L.P. and Pandanus Partners L.P. holds 37.01% interest in FIL Limited.
(4) The information is based on the Corporate Substantial Shareholders Notice dated 15 June 2020 and ﬁled by Eastspring Investments with the Hong Kong Stock Exchange.
(5) The information is based on the Corporate Substantial Shareholders Notice dated 2 December 2020 and ﬁled by Prudential plc with the Hong Kong Stock Exchange.
(6) The information is based on the Corporate Substantial Shareholders Notice dated 7 April 2020 and ﬁled by Brown Brothers Harriman & Co. with the Hong Kong Stock Exchange.
(7) It is calculated on the basis that the Company has issued 2,967,200,000 Domestic Shares and 1,460,800,000 H Shares.
(8) It is calculated on the basis that the Company has issued 4,428,000,000 shares in total.

CHAIRWOMAN'S StAteMeNt

Mdm. SUN Li Li

Dear shareholders and friends,

First of all, I would like to thank all shareholders for the trust. On behalf of the Board, the management and all employees, I would like to express my heartfelt thanks to all shareholders and all sectors of society for their care and support of the Group!

Looking back at the past year, what we faced were immense tasks and severe and complicated external environment caused by the sudden outbreak and spread of COVID-19 epidemic, global economic recession, volatile oil price, and other multiple factors, which severely impacted the industrial chain and supply chain of petrochemical industry. Facing all the challenges, we carried out plans and decisions and continued to advance innovations, giving better play the role of engineering services of reﬁning and petrochemical integration. We attained a series of achievements and scored qualiﬁed answers for the whole year.

Chairwoman of the Board

In 2020, the Group achieved good operating results in adversity. Our operation abides by the international accounting standards, for the year 2020, the revenue of the Company was RMB52.353 billion; the net profit was RMB2.382 billion, representing an increase of 9.1% on a year-on-year basis. The total new contract value was RMB63.014 billion, representing an increase of 20.4% on a year-on-year basis; as at the end of 2020, the backlog of the Group was RMB105.655 billion, representing an increase of 11.2% as compared to that as at the end of 2019. After due consideration of the Group's earnings, return to the shareholders and the needs for future sustainable development, the Board recommended a ﬁnal dividend of RMB0.187 per Share for the year 2020. After taking into account the interim dividend of RMB0.113 per Share, the total dividend for the year will be RMB0.300 per Share, with a dividend payout ratio of 56%.

In 2020, the Group actively responded to changes. Facing theepidemic, we have merged and coexisted with our customers to overcome the difficulties. We built more than 100 projects in over 20 countries around the world, and we had more than 100,000 people stayed at the project sites. We adhered to sound epidemic prevention and control measures, created conditions for efficient and orderly resumption of work and production, and achieved the completion and commissioning of crude oil commercial storage in only eight months. A number of refining and chemical integration projects, such as Zhongke Reﬁning & Chemical project and Sinochem Quanzhou project , have been completed with high standards, which have actively helped improve quality and efficiency in the petrochemical ﬁeld. In respect of scientiﬁc and technological innovations, the Company closely focused on the new needs of the reﬁning and chemical industry, and simultaneously carried out the research and development of equipment technology and construction methods as well as the research and development of process technology. As a result, the ability of technological efficiency creation was signiﬁcantly enhanced and the development foundation was more solid.

In 2020, the level of corporate governance has been steadily improved. The Board insisted on standardised operation. All Directors earnestly complied with applicable PRC laws and regulations, the articles of association of the Company (the "Articles") and the responsibilities vested by the shareholders general meetings, worked diligently and responsibly, made sound decisions, and ensured the implementation of the resolutions passed at the general meetings, with the role of independent directors being well recognised. The Board strengthened the corporate governance, emphasised the Shareholders' returns, strengthened communication with stakeholders, continuously improved the transparency of the Company, and achieved satisfactory results in all respects of its work.

In 2020, the Group has actively fulfilled the corporate social responsibility. During the most severe epidemic period, the construction of production line of meltblown cloth was completed in only 27 days, which alleviated the shortage of core raw materials for masks. We quickly established a cloud platform, implemented one-to-one remote diagnosis and optimization of petrochemical plants and coordinated online and offline services, which enabled disinfectant and other production lines to run under high load and ensured the efficient supply of anti-epidemic materials. The Group has actively researched and developed new green and environment friendly technologies, such as zero-emission treatment of high-salt wastewater from the coal chemical industry, to promote the sustainable development of the reﬁning and chemical industry and has taken practical actions to protect the clear water and blue sky.

Looking forward to 2021, the challenges are severe, yet the opportunities are vast. Among them, the challenges are mainly manifested in three aspects: First, the epidemic is still spreading, the endogenous power of world economic growth is insufficient, the growth rate of reﬁning and chemical industry market is obviously slowing down, and there are many uncertain factors in the new coal chemical business. Second, engineering construction enterprises are confronted with the new challenges of "one high and three difficulties", (high project construction goals, difficulty in core technologies breakthrough, difficulty in system integration and innovation, difficulty in project implementation management). Third, the green and low-carbon development strategy with the goal of "carbon peaking" and "carbon neutrality" has put forward new requirements for the Group's technology research and development and engineering transformation capabilities. In the face of challenges, we are making overall analysis, and we will still have many new opportunities in the coming year. First, the new development pattern, in which the domestic circulation will be given priority and the domestic circulation and international circulation promote positive interplay, will bring more market opportunities for the Group. Second, China will strive to expand two-way trade and investment cooperation with countries along the "The Belt and Road", which also provides a more favorable opportunity for the Group to expand overseas business. Third, Sinopec's industrial pattern of "One Foundation of energy and resources, Two Wings of clean fuels and advanced chemicals, and Three Growth Drivers in new energy, new materials and new economy" and "world's leading development strategy" will further stimulate new momentum.

The state's strategic layout, the transformation needs of the industry, the needs of customers and the expectations of shareholders are the inexhaustible motive force for the Company. In 2021, we will continue to improve and implement the development program under the "14th Five-Year Plan", and comprehensively start the new journey of building "the world's leading technology-oriented engineering company". We will take "Integrated Service Provider with Whole Industry Chain and Whole Life Cycle in Energy and Chemical Industry" as our development orientation. First, we will focus on engineering innovation. We will implement the integrated management of the whole process in many ﬁelds, continue to build a target system for the integration and symbiosis of reﬁning and chemical engineering, ecological environment and social interests, and increase research efforts in areas such as transitions from reﬁning to petrochemical, high-end materials and key core technologies of hydrogen energy industry chain. At the same time of process research and development, we will simultaneously develop equipment manufacturing and precision control, quickly form technological achievements with market inﬂuence, and promote the green and safe development of industry. Second, we will focus on value creation. We will intensify local innovation and system optimization, improve the service ability of engineering and technology in the whole industry chain, and realize the high-quality and efficient construction of projects; coordinate the promotion of engineering digital twinning and intelligent manufacturing of petrochemical plants, and help the transformation and development of traditional petrochemical industry through digitalization.

Our initial intention leads our path ahead, and the mission calls for responsibility. I ﬁrmly believe that with the unremitting efforts of the Board, the management and all employees, and with the strong support of shareholders and all sectors of society, we will be able to continuously enhance the core competitiveness, comprehensive strength, ability of sustainable development and risk resistance, delivering beneﬁts to shareholders, customers, society, and our employees.

SUN Lili

Chairwoman of the Board

Beijing, the PRC

22 March 2021

BUSINESS REVIEW

AND PROSPECTS

1 Business Review

Mr. JIANG Dejun

Director and President

(1) Market Environment

In 2020, the COVID-19 epidemic broke out in the world, and the international crude oil price experienced a unprecedented plummet, resulted by the sharply declining market demand. Facing a more complicated and severe external environment, the Chinese government adhered to the general principle of pursuing progress while ensuring stability, coordinating efforts to advance both the epidemic prevention and control and economic and social development. As a result, the economy recovered smoothly. The gross domestic product of China in 2020 increased by 2.3%, making China the only major economy with positive economic growth in the world.

2020 is the final year of the "13th Five-Year Plan". Since the beginning of the "13th Five-Year Plan", fostering new growth drivers and transforming to low-carbon has been taken as the general principle of development by Chinese energy industry. New breakthroughs were made in market-orientated reforms of the entire industrial chain in reﬁning and petrochemical industry, improving the overall productivity and forming a diversified competition pattern.

In 2020, the surplus of global reﬁning capacity was still existed, accelerating integration and shutdown. Because potential projects in overseas were stalled, the domestic petrochemical industry obtained a window of opportunity in expanding capacity and increasing beneﬁts. Numerous reﬁning and petrochemical integration projects came on stream, expanding the scale of the industrial chain and boosting the self-sufficiency of the overall industry. The domestic crude oil stockpiles obtained expansion opportunities because of the plunged international crude oil price in 2020, and the construction of crude oil storage facilities were accelerated. The demand of clean energy, represented by natural gas, increased steadily, making the natural gas and related industries show a considerable potential.

(2) Operation Overview

During the Reporting Period, the Group's total revenue and proﬁts attributable to equity holders of the Company were RMB52.353 billion and RMB2.382 billion, respectively. As at the end of the Reporting Period, the Group's backlog was RMB105.655 billion. The value of new contracts entered into by the Group during the Reporting Period was RMB63.014 billion, representing an increase of 20.4% on a year-on-year basis, among them, the newly signed overseas contracts amounted to approximately RMB10.161 billion, representing an increase of 50.9% on a year-on-year basis.

The business of the Group mainly comprises four segments: (1) engineering, consulting and licensing; (2) engineering, procurement and construction contracting ("EPC Contracting"); (3) construction and (4) equipment manufacturing.

The following table sets forth the revenue generated from each of the segments and their respective percentage of the Group's total revenue (before inter-segment elimination) during the periods indicated:

Year ended 31 December

2020	2019
Percentage of	Percentage of
Revenue	total revenue	Revenue	total revenue	Change
(RMB' 000)	(%)	(RMB' 000)	(%)	(%)
Engineering, consulting
and licensing	3,695,022	6.2	2,802,805	4.7	31.8
EPC Contracting	33,577,673	56.0	32,438,087	54.4	3.6
Construction	21,912,398	36.5	23,723,645	39.8	(7.6)
Equipment manufacturing	761,389	1.3	611,368	1.1	24.5
Subtotal	59,946,482	100.0	59,575,905	100.0	0.6
Total (after inter-segment
elimination)(1)	52,352,584	N/A	52,261,051	N/A	0.2
Note:

(1) "Total (after inter-segment elimination)" means the aggregate revenue generated from each business segment after inter-segment elimination to exclude the impact of inter-segment transactions. Inter-segment elimination mainly arises from the inter-segment sales to the EPC Contracting segment made by the engineering, consulting and licensing, construction and equipment manufacturing segments.

The following table sets forth the revenue generated from different industries in which the Group's clients operate for the periods indicated:

2020

Revenue	total revenue
(RMB' 000)	(%)
Oil re ning	11,941,849	22.8
Petrochemicals	29,839,940	57.0
New coal chemicals	3,649,328	7.0
Other industries	6,921,467	13.2
Total	52,352,584	100.0

Year ended 31 December
Percentage of	Percentage of
total revenue	Change
(%)	(%)
37.1	(38.4)
48.1	18.7
7.9	(11.2)
6.9	91.9
100.0	0.2

19,399,122

25,146,107

4,109,700

3,606,122

52,261,051

The Group derived its revenue mainly from services provided to clients in oil reﬁning, petrochemicals, new coal chemicals and other industries. During the Reporting Period, due to the steady construction development of EPC contracting projects such as Fujian Gulei Refining and Chemical Integration Project, Zhenhai Refining and Chemical Ethylene Expansion Project and SINOPEC SABIC Polycarbonate Project, revenue generated from petrochemicals industry was RMB29.840 billion, representing an increase of 18.7% on a year-on-year basis; due to the contribution of crude oil storage facility project and natural gas pipeline network as well as gas storage facilities project, revenue generated from other industries was RMB6.921 billion, representing an increase of 91.9% on a year-on-year basis. Revenue generated from oil reﬁning industry was RMB11.942 billion, representing a decrease of 38.4% on a year-on-year basis, which was affected by the settlement and completion for reﬁning projects such as Kuwait Oil Reﬁning Project and Sinopec Tianjin Oil Product Upgrade Project; revenue generated from new coal chemicals industry was RMB3.649 billion, representing a decrease of 11.2% on a year-on-year basis, which was affected by the settlement and completion of coal chemicals projects such as Zhong'An Joint Coaliﬁcation Integration Project.

The following table sets forth the Group's revenue generated in the PRC and overseas for the periods indicated:

Year ended 31 December

2020	2019
Percentage of	Percentage of
Revenue	total revenue	Revenue	total revenue	Change
(RMB' 000)	(%)	(RMB' 000)	(%)	(%)
PRC	47,629,649	91.0	42,551,448	81.4	11.9
Overseas	4,722,935	9.0	9,709,603	18.6	(51.4)
Total	52,352,584	100.0	52,261,051	100.0	0.2

During the Reporting Period, thanks to the rapid control of the domestic epidemic and the active resumption of production in China, we are benefited from the steady construction development of large EPC contracting projects such as Fujian Gulei Refining and Chemical Integration Project, Zhenhai Refining and Chemical Ethylene Expansion Project, SINOPEC SABIC Polycarbonate Project and Sinochem Quanzhou Ethylene Project, revenue of the Group generated in the PRC was RMB47.630 billion, representing an increase of 11.9% on a year-on-year basis; revenue generated from overseas was RMB4.723 billion, representing a decrease of 51.4% on a year-on-year basis, which was affected by the global spread of COVID-19 epidemic and the settlement and completion for Kuwait Oil Reﬁning Project.

As at the end of the Reporting Period, the backlog of the Group amounted to RMB105.655 billion, representing an increase of 11.2% as compared to that as at the end of 2019, and was 2.02 times of the total revenue of RMB52.353 billion in 2020. During the Reporting Period, the value of new contracts amounted to RMB63.014 billion, representing an increase of 20.4% on a year-on-year basis.

During the Reporting Period, representative domestic projects that the Group entered into include Zhenhai Refining and Chemical Ethylene Expansion Project, Hainan Reﬁning & Chemical Ethylene and Oil Reﬁning Reconstruction and Expansion Project, Sinopec Tianjin Liqueﬁed Natural Gas (LNG) Expansion Project (Phase II) Receiving Station Project, Sinopec Shandong Liqueﬁed Natural Gas (LNG) Project Phase II, Shandong Yulong Island Reﬁning and Chemical Integration Project, Shenghong Reﬁning and Chemical Integration Project, Zhejiang Petrochemical Zhoushan Reﬁning and Chemical Integration Project (Phase II), etc.. Representative overseas projects that were entered into by the Group include Saudi Aramco's Crude Oil Pumping Station Upgrading and Improvement Project, Russia Amur AGCC Polyoleﬁn EPSS Project, Hengyi (Brunei) PMB Petrochemical Phase II Project and so on.

During the Reporting Period, the Group's capital expenditure was approximately RMB0.918 billion, which was mainly used for purchase and renewal of engineering facilities and equipment, office facilities and other supporting auxiliary construction, contract energy management investment, construction of temporary facilities for engineering projects, informatization construction, lease of use right assets.

The discussions on the Group's environmental policies, relationships with its major stakeholders and compliance with applicable laws and regulations are set out in the "Report on Corporate Environmental, Social and Governance" to be issued on 12 April 2021.

(3) Business Highlights

Successful implementation of major projects

Zhongke Reﬁning and Chemical Integration Project: please refer to the announcements dated 18 January 2018 and 17 April 2018 published by the Company for further details. As at the end of the Reporting Period, the project has been completed and put into operation.

Fujian Gulei Reﬁning and Petrochemical Integration Project: please refer to the announcement dated 15 April 2019 published by the Company for further details. As at the end of the Reporting Period, the project is in the ﬁnal stage of construction, with an overall progress of about 90%.

SINOPEC SABIC Polycarbonate Project: please refer to the announcement dated 11 June 2018 published by the Company for further details. As at the end of the Reporting Period, the project is in the ﬁnal stage of construction, with an overall progress exceeding 90%.

Sinochem Quanzhou Ethylene Project: please refer to the announcement dated 6 June 2017 published by the Company for further details. As at the end of the Reporting Period, the project has been completed and put into operation.

Zhenhai Reﬁning and Chemical Ethylene Expansion Project: please refer to the announcements dated 28 February 2020 and 16 April 2020 published by the Company for further details. As at the end of the Reporting Period, the project is in the stage of construction and installation, with an overall progress exceeding 40%.

Zhejiang Petrochemical Zhoushan Reﬁning and Chemical Integration Project (Phase II): please refer to the announcements dated 28 February 2020 published by the Company for further details. As at the end of the Reporting Period, the project is in the stage of construction and installation, with an overall progress exceeding 60%.

Saudi Arabia SABIC GAS Phase-9 Air Separation Project: please refer to the announcement dated 17 April 2018 published by the Company for further details. As at the end of the Reporting Period, this project is in the peak stage of construction, with an overall progress exceeding 80%.

Forge ahead in market development

During the Reporting Period, the Group worked hard to overcome the impact of the epidemic and kept a close eye on key project contracts, and made full use of its overall advantages in its industry, business and technical chains, the value of new contracts entered into by the Group was RMB63.014 billion, reaching a new high in recent years, among which, the value of newly signed domestic contracts amounted to RMB52.852 billion, representing an increase of 15.9% on a year-on-year basis, and the value of newly signed overseas contracts amounted to approximately RMB10.161 billion, representing an increase of 50.9% on a year-on-year basis.

During the Reporting Period, the Group continued the intensive work in the domestic market. The Group entered into new contracts for a number of large projects, include Zhenhai Reﬁning and Chemical Ethylene Expansion Project with a total contract value of approximately RMB12.093 billion, Hainan Reﬁning & Chemical Ethylene and Oil Reﬁning Reconstruction and Expansion Project with a total contract value of approximately RMB3.597 billion, Sinopec Tianjin Liqueﬁed Natural Gas (LNG) Expansion Project (Phase II) Receiving Station Project with a total contract value of approximately RMB3.183 billion, Zhejiang Petrochemical Zhoushan Reﬁning and Chemical Integration Project (Phase II) with a total contract value of approximately RMB2.870 billion, Shenghong Reﬁning and Chemical Integration Project with a total contract value of approximately RMB1.676 billion, Shandong Yulong Island Reﬁning and Chemical Integration Project with a total contract value of approximately RMB1.189 billion.

During the Reporting Period, the Group successfully reversed the adverse situation of overseas market development. In the Middle East, the channel and resource advantages formed by long-term operation in Saudi Arabia were brought into play, and the total amount of newly signed contracts was equivalent to about RMB5.8 billion, achieving strong growth; in Russia, Amur AGCC Polyoleﬁn EPSS Project was successfully signed, with a total contract value of approximately RMB1.651 billion; in Southeast Asia, we signed the construction contract for Thailand Clean Oil Products Project with a total contract value of approximately RMB470 million, Contract for Design and Consulting Services of Hengyi (Brunei) PMB Petrochemical Phase II Project with a total contract value of approximately RMB368 million.

Strong support for engineering service

During the Reporting Period, the Group overcame the impact of the epidemic, promoted the orderly resumption of work and production for the relevant projects, and actively launched campaign to overcome difficulties and ensure the smooth operation of the projects; strengthened the coordination of key projects construction, ensured the continuous advancement of all work by relying on the remote collaborative work system; focusing on proﬁtability and progress, the Group implemented the "triple warning" for progress deviation, revenue deviation and budget deviation, rectified the deviation in a timely manner, and strengthened closed-loop management; through optimising the design workﬂow and professional division interface, the Group strengthened standardization, integration, modular design and modular construction to improve the efficiency of design and construction.

During the Reporting Period, the Group continued to strengthen the construction of subcontracting management system, and dynamically evaluated the operational effectiveness of the QHSSE system of strategic subcontractors; continued to strengthen the cultivation of strategic subcontractors, optimized the allocation of subcontracting resources, and ensured the quality, safety, progress and cost control of project construction; improved the subcontracting resources and information sharing platform, realized the integrated management of subcontractor resource pool and subcontractor evaluation, and optimized the subcontracting management cost. While ensuring the supply of materials for various construction projects, the Group has actively explored ways and means to improve procurement management, procurement efficiency, cost reduction and efficiency promotion, continued to promote the practice of framework agreement procurement and centralized procurement, and strengthened procurement management for overseas projects, areas of which witnessed remarkable progress.

The advantages of engineering technology innovation are obvious

Steady progress in research and development of engineering technologies and major progress in key scienti c research projects

During the Reporting Period, the Group has newly set up 172 key scientiﬁc research projects. Relevant scientiﬁc research projects closely focused on the development trend and demand of engineering market technologies. Key research and development projects have steadily moved forward. For "Solid Superacid C5, C6 Isomerization Technology Development and Industrial Test", we have completed the steam opening and calibration of the plant in Zhanjiang, and passed the acceptance of Sinopec Science and Technology Department on 1 December; for the key environmental protection research project "Research and Demonstration of Packaged Technologies for Safe and Reliable Large-ﬂux Plasma Treatment of VOCs", we have completed the construction, commissioning and calibration of the plant in Jingmen, and achieved the target for key problem tackling. For other key environmental protection projects, such as "Development and Industrial Application of Second-Generation High Efficiency Environmental-friendly Aromatics Packaged Technology" and "Integration and Development of Heavy Oil Catalytic Cracking Technology with High Slag Content and Low Emission", we have completed the plant construction, commissioning and calibration work in Hainan and Jingmen respectively as scheduled, and the progress of scientiﬁc research projects is under overall control.

Increasing number of patent applications and numerous fruitful results in technological innovation

During the Reporting Period, the Group completed 660 new patent applications, among which, 401 or 60.8% applications were invention patents applications. The Group also had 361 newly licensed patents, 131 of which were invention patents.

During the Reporting Period, the Group received a total of 81 scientific advancement awards in scientific innovation and engineering construction ﬁelds at the provincial and above level. Among these awards, "development and application of packaged technologies for ultra-low sulfur emission and resource utilization of sulfur-containing waste gas from refining and chemical industry" won the second prize of National Scientiﬁc and Technological Progress Award; further, there were 24 provincial and ministerial scientiﬁc advancement awards, 2 provincial and ministerial invention awards, 2 national excellent design awards, 8 national high quality projects awards, and 35 provincial and ministerial high quality projects awards.

New breakthroughs have been made in digital engineering construction

During the Reporting Period, the Group vigorously promoted digital transformation and intelligent upgrading. According to the model of "data + platform + application", we sorted out the "three-in-one" scenario of whole business life cycle flow, phased management process flow and production tool flow, compiled the information and digital development planning framework under the "14th Five-Year Plan", and comprehensively developed the overall planning and action roadmap of the Group's digital transformation. During the Reporting Period, the Group strengthened the pilot application of and promotion of the "Implementation Detailed Rules for Digital Delivery of Petrochemical Engineering", upgraded the engineering data transfer system and ensured the progress and quality of digital delivery of key projects; focused on smart factory services, deepened the application of engineering master data, explored and studied the integrated application of equipment domain, participated in the construction of petrochemical intelligent cloud, and won the bid for the MIIT's project of design simulation industrial software adaptation and veriﬁcation center.

Environmental protection and low-carbon business continued to expand

During the Reporting Period, the Group continued to expand its energy saving and environmental protection business, and signed a series of contracts such as delayed coking unit closed decoking renovation project, low temperature methanol washing (rectisol) system tail gas treatment project, waste residue landfill site restoration project and circulating water system energy saving renovation project. In the ﬁeld of energy conservation, the Group actively promoted the existing contracted energy management projects and carbon footprint evaluation services, undertook a number of research work on energy conservation issues, and promoted the construction projects of photovoltaic power stations in gas stations and oil depots. In the ﬁeld of soil remediation, the Group closely followed the remediation projects of contaminated sites in many areas within the territory of China, and organized partners to participate in the bidding of KOC crude oil contaminated soil remediation project in Kuwait.

As of the date of this annual report, in order to promote the research on the strategic path of "carbon peaking and carbon neutrality", the Group has established a joint research and development center for carbon neutrality green technology by working with the Institute of Process Engineering, Chinese Academy of Sciences and Yanshan Petrochemical Company. In the future, the Group will give full play to its experience and advantages in engineering technology innovation and engineering transformation, boost the transformation of scientiﬁc and technological achievements, and make continuous contributions to energy conservation and emission reduction in both China and the world.

The quality and safety responsibility system is consistently implemented

During the Reporting Period, under the difficult conditions of double superposition of epidemic risk and safety production, the Group always adhered to the core value of QHSSE (quality, health, safety, security and environment) as People-oriented and Quality First, constantly improved QHSSE management system and effectively implemented corporate responsibility, continuously promoted the construction of dual preventive mechanisms of hierarchical risk control and hidden danger investigation and management, strived to thoroughly identify security risks and major latent risks, strengthened risk control and cemented "Three Foundations" management. The Group advanced the establishment of quality safety standardisation and intrinsic safe construction capability, adhered to the combination of "raided front-line inspection without notice" and "cross-checking", innovatively carried out remote video inspection, and carried out diagnostic evaluation and continuous follow-up on key areas, key nodes, major hidden dangers and outstanding issues. The Group also constantly improved its QHSSE management by organising multi-level trainings, deepening the design of intrinsic safety management, and fully promoting quality elevation activities. In line with its management philosophy of "all staffs, all process, all dimension and all time", the Group kept improving its QHSSE management of domestic and overseas projects, so as to ensure the successful implementation of domestic and overseas projects.

Deepening reform and promoting sustainable development

Adhering to the vision of "building the world's leading technology-oriented engineering company", the Group comprehensively promoted enterprise resource optimization, reform and restructuring in accordance with the development model of "integrated operation and group-wide management and control", and made great efforts to achieve internationalized layout, differentiated development, digital transformation and intelligent upgrading, striving to build a brand of "Integrated Service Provider with Whole Industry Chain and Whole Life Cycle in Energy and Chemical Industry". The Group promoted the Company reform in depth, coordinated the development of all business segments, formed the advantages of collectivization scale, exerted the integration synergy effect, improved and extended the business chain on the basis of consolidating the traditional and core business areas, and made the high-end business bigger and stronger.

During the Reporting Period, the Group continued to promote and improve the reform of the Company's information technology branch. At present, the top-level design of the information technology branch has been promoted as a whole, the key points have been broken through for market development, and various production and operation tasks has been steadily pushed forward. The Group has established the Russian subsidiary to provide more efficient service to overseas projects and owners.

2 Business Prospects

Looking forward to 2021, without ignoring any kinds of derivative risks under the impact of the epidemic, we realize that the world political and economic situation is still complicated and grim. However, with the recovery of global trade demand, the restoration of economic growth momentum, and the construction of a new domestic and international dual-cycle development pattern, China's economic growth is expecting a continuous steady improvement in quality and efficiency. In the future, it is predictable that the epidemic will reshape the global energy pattern, the growth rate of crude oil demand will be weaker than supply, and the international oil price will rise to a limited margin; the newly-built reﬁning and chemical production capacity in China will be released intensively, the market players are becoming diversiﬁed, the replacement of new energy is accelerated, the green and low-carbon standards are upgraded, and opportunities and challenges coexist.

2021 is the ﬁrst year of the "14th Five-Year Plan". China's energy and chemical industry is moving towards a new stage of high-quality development. China will continue to exert its strength in accelerating energy transformation, improving energy security, accelerating technological innovation and releasing the vitality of the industry, and will promote the development of the industry to a higher level. Multiple petrochemical projects in the PRC continue to advance, private enterprises keep active investment, international giants such as ExxonMobil, BASF and Saudi Aramco actively deploy their resources in the Chinese market, and the reﬁning and chemical engineering market remains to be the arena full of opportunities and challenges. For the situation overseas, emerging economies and developing countries still have greater demand for energy and basic chemical materials. With the expansion of vaccination scale, the recovery of economy after the alleviation of global epidemic is expected to drive the overseas engineering market to revive.

In 2021, the Group will adhere to the development orientation of "Integrated Service Provider with Whole Industry Chain and Whole Life Cycle in Energy and Chemical Industry", base itself on the energy and chemical engineering construction industry, continuously broaden its business scope, extend its value chain, strengthen engineering innovation and value creation, and provide customers with high-quality one-stop overall solutions. In 2021, the Group's target of domestic new contract value is RMB49 billion, and the target of overseas new contract value is USD1.5 billion.

(1) Join hands with stakeholders to overcome difficulties and start a new journey of the 14th Five-Year Plan

2021 is the year when the "14th Five-Year Plan" sets sail, and it is also a new starting point for China's petrochemical industry to move towards a new stage of high-quality development. Faced with new opportunities, new challenges, new patterns and new requirements, the Group will anchor the development vision of "building the world's leading technology-oriented engineering company" and the development orientation of "Integrated Service Provider with Whole Industry Chain and Whole Life Cycle in Energy and Chemical Industry", base itself on the energy and chemical engineering construction industry, broaden its business scope, extend its value chain, and comprehensively enhance the safety, efficiency and intelligence of its business chain through "differentiated development, international operation, digital transformation and intelligent upgrading".

In the future, the Group will focus on "engineering innovation" and "value creation". The Group will continuously strengthen its engineering innovation capability, build an engineering innovation platform with engineering technology as the guide, engineering consultation as the link, engineering design as the main body and engineering construction as the support, give full play to the advantages of integration of engineering transformation and engineering implementation, and cultivate, lead and drive the market and serve customers with innovation. The Group will focus on value creation, explore and establish a new format of collaborative work based on digital engineering, create a collaborative consortium integrating all links in the whole life cycle of the project, strive to build an efficient value chain in which service demand and interests of relevant parties are coupled with each other, and enhance the value creation ability of the whole industry chain.

(2) Adhere to technological innovation and empower high-quality development

Innovation is the first driving force for development. In 2021, the Group will focus on building an innovation system with technological innovation as the core, make more efforts in independent innovation, strengthen the optimization and integration of internal and external scientiﬁc research resources, and strengthen cooperative innovation with open thinking; seek to lead the market expansion, enhance competitive strength and promote value increase through technological innovation. At the same time, the Group will promote innovation in terms of development concept, system and mechanism, business model and corporate culture, so as to provide assurance for improving innovation efficiency and achieving high-quality development.

(3) Focusing on energy transformation and upgrading, creating new highlights of performance growth

In 2021, the Group will adhere to customer-centered service pattern, keep close to customer needs, coordinate internal resources and integrate external resources, strengthen and extend the business chain of engineering service while expanding the energy and chemical industry business chain, and do its best to serve the transformation and upgrading of the energy and chemical industry. Make more efforts of overall development in traditional ﬁelds such as reﬁning and chemical integration, comprehensive utilization of light hydrocarbons, new coal chemicals and LNG, and accelerate the growth of the Company's business scale and efficiency.

In 2021, the Group will also strengthen market research on new energy, new materials and new economy, continuously promote the development of new markets for clean energy, new materials, energy conservation and environmental protection, promote the scale growth of energy conservation business and soil remediation business, and extend business chains in digital delivery, intelligent factories and other ﬁelds to accelerate the formation of new performance growth points.

(4) Turning crisis into opportunity, we are making steady progress in global business development

In 2021, the Group will strengthen and optimize the global deployment, give full play to the advantages of integration, and comprehensively enhance the internationalization capability of the Company. Maintain the dominant position in traditional regional markets such as the Middle East, Central Asia, Russia and Southeast Asia, do a good job in bidding and quotation of key projects. Actively cultivate new regional markets such as Africa, South Asia and South America, expand market development channels and models, actively cultivate "one-stop overall solutions", strive to provide customers with all-round high-quality services, and continuously improve the level of internationalized business operation.

(5) Strengthen the construction of digital engineering and promote the engineering digital twin planning as a whole

In 2021, the Group will strengthen the top-level design of digital transformation and comprehensively develop the overall arrangement and action plan of digital transformation. The Group will continue to promote the construction of digital engineering system, strengthen system construction and system integration by taking customer demand as the starting point, promote process reengineering, integrate all links in the whole life cycle of the projects, realize information management and intelligent association in the process of engineering construction, and automatically collect digital information in the whole process of engineering construction, so as to realize digital twinning of petrochemical engineering at a higher level. The Group will speed up the research and development of core key technologies of desktop reﬁning and chemical plants, realize the dynamic correlation of technological processes, provide customers with high-quality real-time optimization and remote diagnosis services, and interconnect with plant operation and maintenance data on this basis, providing important support for further promoting the digital transformation and intelligent manufacturing of reﬁning and chemical enterprises.

(6) Strengthen project process management, take various measures to enhance cost efficiency

In 2021, the Group will continue to strengthen project control and coordination, fully guarantee the smooth implementation of projects under construction. Focusing on revenue conversion and cost reduction, we will strengthen production management and operation plans, and enhance economic beneﬁts from the projects. The Group will further strengthen the reﬁned management of project costs, continue to advance design optimisation, promote centralized procurement, emphasise inventory and contract asset management, strengthen the process management of project implementation, conﬁrm the progress and contract changes in time, and further reduce costs and increase efficiency.

(7) Promote the innovation of human resource management system

In 2021, the Group will strengthen the in-depth integration of corporate strategy, corporate culture and human resources management, promote the continuous deepening and innovation of the reform of the HR strategy management system, and create a driving force and atmosphere for innovation and creation. The Group will continue to improve the value creation and sharing mechanism of the whole industrial chain, promote the reform of the three systems of labor, personnel and remuneration, further improve the market-oriented employment mechanism, and attract more and better talents to support the Company's development and value creation. Aiming at improving overall operational efficiency and enhancing input-output efficiency, the Group will further give play to the governance advantages of listed companies, establish a more ﬂexible and diverse incentive system, and stimulate the enthusiasm and initiative of all employees to create value.

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following discussion and analysis should be read in conjunction with the Group's audited ﬁnancial statements and the accompanying notes contained in this annual report. The relevant ﬁnancial data below, unless otherwise stated, are extracted from the Group's audited ﬁnancial statements prepared according to the IFRS.

1 Consolidated Results of Operations

The following table sets forth the consolidated statement of pro t or loss and comprehensive income of the Group for the indicated years.

Year ended 31 December

2020	2019
Percentage of	Percentage of
Amount	total revenue	Amount	total revenue	Change
(RMB' 000)	(%)	(RMB' 000)	(%)	(%)
Revenue	52,352,584	100.0	52,261,051	100.0	0.2
Cost of sales	(46,638,512)	(89.1)	(46,778,318)	(89.5)	(0.3)
Gross pro t	5,714,072	10.9	5,482,733	10.5	4.2
Other income	463,852	0.9	254,958	0.5	81.9
Selling and marketing
expenses	(134,841)	(0.3)	(131,243)	(0.3)	2.7
Administrative expenses	(1,255,804)	(2.4)	(1,281,950)	(2.5)	(2.0)
Research and development
costs	(2,175,183)	(4.2)	(2,136,152)	(4.1)	1.8
Other operating expenses	(420,877)	(0.8)	(191,263)	(0.4)	120.1
Other gains - net	13,160	0.0	19,924	0.0	(33.9)
Operating pro t	2,204,379	4.2	2,017,007	3.9	9.3
Finance income	881,495	1.7	897,375	1.7	(1.8)
Finance expenses	(90,390)	(0.2)	(111,130)	(0.2)	(18.7)
Finance income - net	791,105	1.5	786,245	1.5	0.6
Share of (losses)/pro ts of
joint arrangements	(41)	(0.0)	650	0.0	-
Share of pro t of associates	15,119	0.0	23,498	0.0	(35.7)
Pro t before taxation	3,010,562	5.8	2,827,400	5.4	6.5
Income tax expense	(628,356)	(1.2)	(643,881)	(1.2)	(2.4)
Pro t for the year	2,382,206	4.6	2,183,519	4.2	9.1

(1) Revenue

The revenue of the Group was RMB52.353 billion, representing an increase of 0.2% on a year-on-year basis.

(2) Cost of sales

The cost of sales of the Group decreased by 0.3% from RMB46.778 billion for the year ended 31 December 2019 to RMB46.639 billion for the year ended 31 December 2020.

(3) Gross pro t

The gross proﬁt of the Group increased by 4.2% from RMB5.483 billion for the year ended 31 December 2019 to RMB5.714 billion for the year ended 31 December 2020, the gross proﬁt margin increased from 10.5% for the same period of last year to 10.9%, which was mainly due to the Company's successive efforts to tackle key problems and create efficiency, resulting in a year-on-year increase in gross proﬁt and gross proﬁt margin.

(4) Other income

The other income of the Group increased by 81.9% from RMB255 million for the year ended 31 December 2019 to RMB464 million for the year ended 31 December 2020, a year-on-year increase of RMB209 million. The main reason is that during the reporting period, we received the proceeding of government subsidies for enterprise's electricity supply, water supply, heat supply and property management cost.

(5) Selling and marketing expenses

The selling and marketing expenses of the Group were RMB135 million, which remained broadly stable on a year-on-year basis.

(6) Administrative expenses

The administrative expenses of the Group were RMB1.256 billion, which remained broadly stable on a year-on-year basis.

(7) Research and development costs

The research and development costs of the Group were RMB2.175 billion, which remained broadly stable on a year-on-year basis.

(8) Other operating expenses

Other operating expenses of the Group increased by 120.1% from RMB191 million for the year ended 31 December 2019 to RMB421 million for the year ended 31 December 2020. Main reasons were the impairment allowance and the exchange loss in the Reporting Period.

(9) Other gains - net

The net other gains of the Group decreased by 33.9% from RMB20 million for the year ended 31 December 2019 to a gain of RMB13 million for the year ended 31 December 2020, which was mainly due to the year-on-year decline in asset disposal gain.

(10) Operating pro t

Due to the above reasons, the operating proﬁt of the Group increased by 9.3% from RMB2.017 billion for the year ended 31 December 2019 to RMB2.204 billion for the year ended 31 December 2020.

(11) Finance income - net

The net ﬁnance income of the Group was RMB791 million, which remained broadly stable on a year-on-year basis.

(12) Income tax expense

The Group's income tax expense was RMB628 million, which remained broadly stable on a year-on-year basis. The effective income tax rate decreased from 22.8% to 20.9% on a year-on-year basis. The change in the effective income tax rate was mainly due to the proﬁt ﬂuctuation of certain subsidiaries with different tax rates.

(13) Pro t for the year

Due to the above reasons, the proﬁt for the year increased by 9.1% from RMB2.184 billion for the year ended 31 December 2019 to RMB2.382 billion for the year ended 31 December 2020.

2 Discussion on the Results by Business Segments

The following table sets forth the revenue, gross pro t, gross pro t margin, operating pro t and operating pro t margin of each of our business segments for the periods indicated:

Segment gross	Segment operating
Segment revenue	Segment gross pro t	pro t margin	Segment operating pro t	pro t margin
Year ended 31 December	Year ended 31 December	Year ended 31 December	Year ended 31 December	Year ended 31 December

2019

2020

2019

2020

2019

2020

2019

2020

2019

(RMB' 000)

(%)

(RMB' 000)

(%)

Engineering, consulting and licensing

EPC Contracting

Construction

Equipment manufacturing

Unallocated

Subtotal

Total after inter-segment elimination (3)

1.0

5.1

1.2

(1.1)

N/A

3.9(2)

Notes:

(1) Total gross proﬁt margin is calculated based on total gross proﬁt divided by total revenue, and total revenue is the gross earnings generated after inter-segment elimination in all the business segments.
(2) Total operating proﬁt margin of the segment is calculated based on the total operating proﬁt of the segment divided by total revenue, and total revenue is the gross earnings generated after inter-segment elimination in all the business segments.
(3) Inter-segment elimination is mainly caused by the inter-segment sales made by the engineering, consulting and licensing, construction and equipment manufacturing segments to the EPC Contracting segment. Other information on inter-segment sales is set out in Note 7 to the ﬁnancial statements contained in this annual report.

Engineering, Consulting and Licensing

The operating results of the Group's engineering, consulting and licensing business are as follows:

Year ended 31 December

2020
Percentage of
Amount	segment revenue
(RMB' 000)	(%)	(%)
Revenue	3,695,022	100.0	100.0
Cost of sales	2,499,592	(67.6)	(68.7)
Gross pro t	1,195,430	32.4	31.3
Selling and marketing expenses	(32,269)	(0.9)	(1.0)
Administrative expenses	(250,032)	(6.8)	(8.6)
Research and development costs	(674,861)	(18.3)	(23.2)
Other income and expenses	(175,871)	(4.8)	2.5
Operating pro t	62,397	1.7	1.0
(1) Revenue

2019

Amount

(RMB' 000)

2,802,805

(1,926,021)

876,784

(27,975)

(240,096)

(649,574)

68,955

28,094

The revenue generated from the Group's engineering, consulting and licensing segment increased by 31.8% from RMB2.803 billion for the year ended 31 December 2019 to RMB3.695 billion for the year ended 31 December 2020, which was mainly due to the increase in engineering business volume.

(2) Cost of sales

The cost of sales of the Group's engineering, consulting and licensing segment increased by 29.8% from RMB1.926 billion for the year ended 31 December 2019 to RMB2.500 billion for the year ended 31 December 2020, which was mainly due to the cost increase corresponding to the increase of business volume.

(3) Gross pro t

The gross proﬁt of the Group's engineering, consulting and licensing segment increased by 36.3% from RMB877 million for the year ended 31 December 2019 to RMB1.195 million for the year ended 31 December 2020, the gross proﬁt margin increased from 31.3% for the same period of last year to 32.4%, which was mainly due to the increase in revenue of the segment being greater than the increase in cost.

(4) Selling and marketing expenses

The selling and marketing expenses of the Group's engineering, consulting and licensing segment were RMB32 million, which remained broadly stable on a year-on-year basis.

(5) Administrative expenses

The administrative expenses of the Group's engineering, consulting and licensing segment were RMB250 million, which remained broadly stable on a year-on-year basis.

(6) Research and development costs

The research and development costs of the Group's engineering, consulting and licensing segment increased by 3.9% from RMB650 million for the year ended 31 December 2019 to RMB675 million for the year ended 31 December 2020, which was mainly due to the increase in R&D investment in new technologies and new processes by the Group.

(7) Operating pro t

Due to the above reasons, the operating proﬁt of the Group's engineering, consulting and licensing segment increased by 122.1% from RMB28 million for the year ended 31 December 2019 to RMB62 million.

EPC Contracting

The operating results of the Group's EPC contracting business are as follows:

Year ended 31 December

2019
Percentage of	Percentage of
Amount	segment revenue	Amount	segment revenue
(RMB' 000)	(%)	(RMB' 000)	(%)
Revenue	33,577,673	100.0	32,438,087	100.0
Cost of sales	(30,521,338)	(90.9)	(29,446,360)	(90.8)
Gross pro t	3,056,335	9.1	2,991,727	9.2
Selling and marketing expenses	(53,720)	(0.2)	(51,581)	(0.2)
Administrative expenses	(422,492)	(1.3)	(412,921)	(1.3)
Research and development costs	(922,620)	(2.7)	(903,451)	(2.8)
Other income and expenses	38,834	0.1	42,831	0.1
Operating pro t	1,696,337	5.1	1,666,605	5.1
(1) Revenue

2020

The revenue generated from the Group's EPC contracting segment increased by 3.5% from RMB32.438 billion for the year ended 31 December 2019 to RMB33.578 billion for the year ended 31 December 2020, which was mainly due to the revenue contribution of large EPC contracting projects such as Fujian Gulei Reﬁning and Chemical Integration Project, Zhenhai Reﬁning and Chemical Ethylene Expansion Project, SINOPEC SABIC Polycarbonate Project and Sinochem Quanzhou Ethylene Project.

(2) Cost of sales

The cost of sales of the Group's EPC contracting segment increased by 3.7% from RMB29.446 billion for the year ended 31 December 2019 to RMB30.521 billion for the year ended 31 December 2020, which was mainly due to the large EPC contracting projects such as Fujian Gulei Reﬁning and Chemical Integration Project, Zhenhai Reﬁning and Chemical Ethylene Expansion Project and SINOPEC SABIC Polycarbonate Project entering the peak period of equipment and materials procurement, which increased the equipment and materials costs.

(3) Gross pro t

Due to the above reasons, the gross proﬁt of the Group's EPC contracting segment increased by 2.2% from RMB2.992 billion for the year ended 31 December 2019 to RMB3.056 billion for the year ended 31 December 2020, and the gross proﬁt margin decreased from 9.2% to 9.1% on a year-on-year basis.

(4) Selling and marketing expenses

The selling and marketing expenses of the Group's EPC contracting segment were RMB54 million, which remained broadly stable on a year-on-year basis.

(5) Administrative expenses

The administrative expenses of the Group's EPC contracting segment were RMB422 million, which remained broadly stable on a year-on-year basis.

(6) Research and development costs

The research and development costs of the Group's EPC contracting segment were RMB923 million, which remained broadly stable on a year-on-year basis.

(7) Operating pro t

Due to the above reasons, the operating proﬁt of the Group's EPC contracting segment increased by 1.8% from RMB1.667 billion for the year ended 31 December 2019 to RMB1.696 billion for the year ended 31 December 2020.

Construction

The operating results of the Group's construction business are as follows:

Year ended 31 December

2019
Percentage of	Percentage of
Amount	segment revenue	Amount	segment revenue
(RMB' 000)	(%)	(RMB' 000)	(%)
Revenue	21,912,398	100.0	23,723,645	100.0
Cost of sales	(20,506,024)	(93.6)	(22,125,935)	(93.3)
Gross pro t	1,406,374	6.4	1,597,710	6.7
Selling and marketing expenses	(44,740)	(0.2)	(47,842)	(0.2)
Administrative expenses	(565,219)	(2.6)	(610,989)	(2.6)
Research and development costs	(576,393)	(2.6)	(581,717)	(2.5)
Other income and expenses	76,730	0.4	(64,993)	(0.3)
Operating pro t/(losses)	296,752	1.4	292,169	1.2
(1) Revenue

2020

The revenue generated from the Group's construction segment decreased by 7.6% from RMB23.724 billion for the year ended 31 December 2019 to RMB21.912 billion for the year ended 31 December 2020, which was mainly due to the decreased business volume in construction.

(2) Cost of sales

The cost of sales of the Group's construction segment decreased by 7.3% from RMB22.126 billion for the year ended 31 December 2019 to RMB20.506 billion for the year ended 31 December 2020, which was mainly due to the decrease with reduction of business volume.

(3) Gross pro t

Due to the above reasons, the gross proﬁt of the Group's construction segment decreased by 12.0% from RMB1.598 billion for the year ended 31 December 2019 to RMB1.406 billion for the year ended 31 December 2020, and the gross proﬁt margin decreased from 6.7% to 6.4% on a year-on-year basis, which were mainly due to the decrease in business volume of the construction segment and the impact of COVID-19 epidemic, the cost decrease is less than the revenue decrease.

(4) Selling and marketing expenses

The selling and marketing expenses of the Group's construction segment were RMB45 million, which remained broadly stable on a year-on-year basis.

(5) Administrative expenses

The administrative expenses of the Group's construction segment decreased by 7.5% from RMB611 million for the year ended 31 December 2019 to RMB565 million for the year ended 31 December 2020, which were mainly due to the year-on-year decrease in travel and office expenses.

(6) Research and development costs

The research and development costs of the Group's construction segment were RMB576 million, which remained broadly stable on a year-on-year basis.

(7) Operating pro t

Due to the above reasons and the impact of the increase of government subsidies for enterprise's "Water/Electricity/Gas Supply and Property Management" in the Reporting Period, the operating proﬁts of the construction segment of the Group increased by 1.6% from RMB292 million for the year ended 31 December 2019 to RMB297 million for the year ended 31 December 2020.

Equipment Manufacturing

The operating results of the Group's equipment manufacturing business are as follows:

Year ended 31 December

2020	2019
Percentage of	Percentage of
Amount	segment revenue	Amount	segment revenue
(RMB' 000)	(%)	(RMB' 000)	(%)
Revenue	761,389	100.0	611,368	100.0
Cost of sales	(705,456)	(92.7)	(594,856)	(97.3)
Gross pro t	55,933	7.3	16,512	2.7
Selling and marketing expenses	(4,112)	(0.5)	(3,845)	(0.6)
Administrative expenses	(18,061)	(2.4)	(17,944)	(2.9)
Research and development costs	(1,309)	(0.2)	(1,410)	(0.2)
Other income and expenses	(31,424)	(4.1)	(195)	(0.0)
Operating pro ts/(losses)	1,027	0.1	(6,882)	(1.1)
(1) Revenue

The revenue generated from the Group's equipment manufacturing segment increased by 24.5% from RMB611 million for the year ended 31 December 2019 to RMB761 million for the year ended 31 December 2020, which was mainly due to the increased business volume in equipment manufacturing.

(2) Cost of sales

The cost of sales of the Group's equipment manufacturing segment increased by 18.6% from RMB595 million for the year ended 31 December 2019 to RMB705 million for the year ended 31 December 2020, which was mainly due to the cost increase with the increase of business volume.

(3) Gross pro t

The gross proﬁt of the Group's equipment manufacturing segment increased by 238.7% from RMB17 million for the year ended 31 December 2019 to RMB56 million for the year ended 31 December 2020, and gross proﬁt margin increased from 2.7% to 7.3% on a year-on-year basis, which was mainly due to the greater contribution of revenue of some businesses with higher added value.

(4) Selling and marketing expenses

The selling and marketing expenses of the Group's equipment manufacturing segment were RMB4 million, which remained broadly stable on a year-on-year basis.

(5) Administrative expenses

The administrative expenses of the Group's equipment manufacturing segment were RMB18 million, which remained broadly stable on a year-on-year basis.

(6) Research and development costs

The research and development costs of the Group's equipment manufacturing segment were RMB1 million, which remained broadly stable on a year-on-year basis.

(7) Operating pro ts/(losses)

Due to the above reasons, the operating proﬁt of the Group's equipment manufacturing segment increased from a loss of RMB7 million for the year ended 31 December 2019 to a proﬁt of RMB1 million for the year ended 31 December 2020.

3 Discussion on the results by other classi cation

The following table sets forth the revenue generated from different industries in which the Group's clients operate:

2020

Revenue	total revenue
(RMB' 000)	(%)
Oil re ning	11,941,849	22.8
Petrochemicals	29,839,940	57.0
New coal chemicals	3,649,328	7.0
Other industries	6,921,467	13.2
Total	52,352,584	100.0

Year ended 31 December
Percentage of	Percentage of
total revenue	Change
(%)	(%)
37.1	(38.4)
48.1	18.7
7.9	(11.2)
6.9	91.9
100.0	0.2

19,399,122

25,146,107

4,109,700

3,606,122

52,261,051

During the Reporting Period, due to the revenue contribution of EPC contracting projects such as Fujian Gulei Refining and Chemical Integration Project and Zhenhai Refining and Chemical Ethylene Expansion Project, revenue generated from petrochemicals industry was RMB29.840 billion, representing an increase of 18.7% on a year-on-year basis; due to the contribution of crude oil storage facility project and natural gas pipeline network as well as gas storage facilities project, revenue generated from other industries was RMB6.921 billion, representing an increase of 91.9% on a year-on-year basis. Revenue generated from oil reﬁning industry was RMB11.942 billion, representing a decrease of 38.4% on a year-on-year basis, which was affected by the settlement and completion for reﬁning projects such as Kuwait Oil Reﬁning Project and Sinopec Tianjin Oil Product Upgrade Project; revenue generated from new coal chemicals industry was RMB3.649 billion, representing a decrease of 11.2% on a year-on-year basis, which was affected by the settlement and completion of coal chemicals projects such as Zhong'An Joint Coaliﬁcation Integration Project.

The following table sets forth the revenue generated from different regions where the Group's clients operate:

2020

Revenue	total revenue
(RMB' 000)	(%)
PRC	47,629,649	91.0
Overseas	4,722,935	9.0
Total	52,352,584	100.0

Year ended 31 December
Percentage of	Percentage of
total revenue	Change
(%)	(%)
81.4	11.9
18.6	(51.4)
100.0	0.2

During the Reporting Period, thanks to the rapid control of the domestic epidemic and the active resumption of production in China, we are benefited from the steady construction development of large EPC contracting projects such as Fujian Gulei Reﬁning and Chemical Integration Project, Zhenhai Reﬁning and Chemical Ethylene Expansion Project and SINOPEC SABIC Polycarbonate Project, revenue of the Group generated in the PRC was RMB47.630 billion, representing an increase of 11.9% on a year-on-year basis; revenue generated from overseas was RMB4.723 billion, representing a decrease of 51.4% on a year-on-year basis, which was affected by the global spread of COVID-19 epidemic and the settlement and completion for Kuwait Oil Reﬁning Project.

The following table sets forth the revenue generated from services provided by the Group for (i) Sinopec Group and its associates; and (ii) non-Sinopec Group and its associates:

Year ended 31 December

2019

RevenuePercentage of total revenue

Change

(RMB' 000)

(%)

25,700,995

49.2

28.8

26,560,056 52,261,051

50.8

(27.6)

100.0

0.2

During the Reporting Period, the revenue generated from Sinopec Group and its associates was RMB33.115 billion, representing an increase of 28.8% on a year-on-year basis, and affected by the decline in income from overseas projects, the revenue generated from non-Sinopec Group and its associates was RMB19.238 billion, representing a decrease of 27.6% on a year-on-year basis.

4 Discussion on the backlog and new contracts

Backlog represents the total estimated contract value of work that remains to be completed pursuant to outstanding contracts as at a certain date, net of estimated value added tax, and is calculated based on the Group's assumption that the relevant contracts will be performed in accordance with their terms. Backlog is not a measure deﬁned by generally accepted accounting principles. Any modiﬁcation, termination or suspension of these contracts by the Group's clients may have a substantial and immediate effect on the Group's backlog. Projects may also remain in the Group's backlog for an extended period of time beyond what was initially anticipated due to various factors beyond the Group's control.

The following table sets forth the total value of backlog for each business segment of the Group as at the dates indicated:

As at 31 December 2020	As at 31 December 2019	Change
(%)
Engineering, consulting and
licensing	8,636,102	8,192,663	5.4
EPC Contracting	76,223,009	72,662,664	4.9
Construction	20,003,498	13,653,862	46.5
Equipment manufacturing	791,998	484,371	63.5
Total	105,654,607	94,993,560	11.2

(RMB' 000)

The following table sets forth the total value of backlog categorised by the industries in which the Group's clients operate as at the dates indicated:

As at 31 December 2020	As at 31 December 2019	Change
(%)
Oil re ning	30,826,320	28,201,648	9.3
Petrochemicals	27,071,948	28,285,500	(4.3)
New coal chemicals	11,582,761	13,394,670	(13.5)
Other industries	36,173,578	25,111,742	44.1
Total	105,654,607	94,993,560	11.2

The following table sets forth the total value of the backlog by regions as at the dates indicated:

As at 31 December 2020	As at 31 December 2019	Change
(%)
PRC	79,977,151	74,754,485	7.0
Overseas	25,677,456	20,239,075	26.9
Total	105,654,607	94,993,560	11.2

The following table sets forth the total value of backlog categorised by the clients of each of (i) Sinopec Group and its associates, and (ii) non-Sinopec Group and its associates as at the dates indicated:

As at 31 December 2020	As at 31 December 2019	Change
(%)
Sinopec Group and its associates	58,420,185	49,789,049	17.3
Non-Sinopec Group and
its associates	47,234,422	45,204,511	4.5
Total	105,654,607	94,993,560	11.2

(RMB' 000)

As at 31 December 2020, the Group's backlog was RMB105.655 billion, representing an increase of 11.2% compared to that as at 31 December 2019, and 2.02 times of the total revenue of RMB52.353 billion in 2020.

The following table sets forth the total value of new contracts entered into categorised by the Group's each business segment in the periods indicated:

Year ended 31 December

2020	2019	Change
(RMB' 000)	(%)
Engineering, consulting and
licensing	4,046,963	2,713,103	49.2
EPC Contracting	37,138,017	31,208,711	19.0
Construction	21,154,013	18,142,304	16.6
Equipment manufacturing	674,638	255,029	164.5
Total	63,013,631	52,319,147	20.4

The following table sets forth the total value of new contracts entered into by the Group categorised by the industries in which the Group's clients operate in the periods indicated:

Year ended 31 December

2020	2019	Change
(RMB' 000)	(%)
Oil re ning	14,566,521	14,058,072	3.6
Petrochemicals	28,626,388	24,035,891	19.1
New coal chemicals	1,837,419	7,012,922	(73.8)
Other industries	17,983,303	7,212,262	149.3
Total	63,013,631	52,319,147	20.4

The following table sets forth the total value of new contracts entered into by the Group by regions in the periods indicated:

Year ended 31 December
2020	2019	Change
(RMB' 000)	(%)
PRC	52,852,315	45,585,147	15.9
Overseas	10,161,316	6,734,000	50.9
Total	63,013,631	52,319,147	20.4

The following table sets forth the total value of new contracts entered into by the Group with the clients of each of (i) Sinopec Group and its associates, and (ii) non-Sinopec Group and its associates in the periods indicated:

During the Reporting Period, the value of the Group's new contracts was RMB63.014 billion, representing an increase of 20.4% on a year-on-year basis.

5 Assets, Liabilities, Equity and Cash Flows

The Group's funds mainly came from operating activities and were primarily used for working capital, capital expenditure and dividend distribution.

(1) Assets, Liabilities and Equity

Unit: RMB' 000
As at 31 December 2020	As at 31 December 2019	Changes
Total assets	71,465,327	67,873,748	3,591,579
Current assets	64,055,416	60,616,791	3,438,625
Non-current assets	7,409,911	7,256,957	152,954
Total liabilities	43,209,289	40,603,207	2,606,082
Current liabilities	40,672,278	37,791,658	2,880,620
Non-current liabilities	2,537,011	2,811,549	(274,538)
Net assets	28,256,038	27,270,541	985,497
Share capital	4,428,000	4,428,000	-
Reserves	23,823,172	22,837,976	985,196
Equity attributable to equity
holders of the Company	28,251,172	27,265,976	985,196
Non-controlling interests	4,866	4,565	301

As at the end of the Reporting Period, the total assets of the Group were RMB71.465 billion, the total liabilities were RMB43.209 billion, the non-controlling interests were RMB5 million, and the equity attributable to the equity holders of the Company was RMB28.251 billion. The changes in the assets and liabilities as compared with those as at the end of 2019 and the main reasons are as follows:

As at the end of the Reporting Period, the total assets were RMB71.465 billion, increased by RMB3.592 billion as compared with that as at the end of 2019. In particular, the current assets were RMB64.055 billion, increased by RMB3.439 billion as compared with that as at the end of 2019, which was mainly due to the increase of RMB2 billion in loans receivable from the ultimate holding company as compared with the beginning of the year, an increase of RMB1.187 billion in time deposits as compared with the beginning of the year, an increase of RMB1.041 billion in prepayments and other receivables, an increase of RMB740 million in contract assets as compared with the beginning of the year, a decrease of RMB1.495 billion in cash and cash equivalents as compared with the beginning of the year, a decrease of RMB189 million in notes and trade receivables; non-current assets amounted to RMB7.410 billion, an increase of RMB153 million over the end of 2019, which was mainly due to an increase of RMB284 million in property, plant and equipment.

As at the end of the Reporting Period, the total liabilities were RMB43.209 billion, increased by RMB2.606 billion as compared with that as at the end of 2019. In particular, the current liabilities were RMB40.672 billion, increased by RMB2.881 billion as compared with that as at the end of 2019, which was mainly due to the increase of contract liabilities by RMB2.196 billion, the increase of other payables by RMB888 million and the decrease of notes and trade payables by RMB438 million. The non-current liabilities were RMB2.537 billion, decreased by RMB275 million as compared with that as at the end of 2019, which was mainly due to a decrease of RMB236 million in retirement and other supplementary beneﬁt obligations.

The equity attributable to equity holders of the Company was RMB28.251 billion, increased by RMB985 million as compared with that as at the end of 2019, which was mainly due to the increase in retained earnings in the Reporting Period.

(2) Cash Flows

During the Reporting Period, the net decrease in cash and cash equivalents was RMB1.250 billion and net cash generated from operating activities was RMB2.957 billion. The following table sets forth the main items and their changes in the Group's consolidated cash ﬂow statements for the year ended 31 December 2020 and 2019, respectively.

Unit: RMB' 000

Year ended 31 December
Major items of cash ow	2020	2019
Net cash generated from operating activities	2,956,836	300,047
Net cash (used in)/generated from investing activities	(2,951,614)	(5,889,979)
Net cash used in nancing activities	(1,255,306)	(1,505,020)
Net (decrease)/increase in cash and cash equivalents	(1,250,084)	(7,094,952)

During the Reporting Period, the proﬁt before taxation was RMB3.011 billion, and the proﬁt was RMB3.197 billion after adjusting the items (non-cash expense items) in expenses that did not affect the cash ﬂow in operating activities. Major non-cash expense items included depreciation and amortisation of RMB650 million; gains on disposal of property, plant, equipment and land use rights of RMB18 million; provision for ECL on trade and other receivables and contract assets of RMB225 million; exchange losses of RMB138 million, net interest income and expenditure of RMB791 million. Changes in working capital increased cash inﬂows of RMB203 million, which were mainly shown in: the increase in trade and other receivables balance which caused the cash outﬂow from operating activities of RMB1.230 billion; the increase in contract assets which caused the cash inﬂow from operating activities of RMB762 million; the increase in inventory balance which caused the cash outﬂow from operating activities of RMB155 million; the increase in trade and other payables balance which caused the cash inflow from operating activities of RMB152 million; the increase in contract liabilities which caused cash inﬂow from operating activities of RMB2.196 billion. After adjusting non-cash expense items, receivables and payables for the proﬁt before taxation, deducting the income tax paid amounting to RMB565 million, and increasing inﬂow of received interest by RMB122 million, the net cash generated from operating activities was RMB2.957 billion.

Net cash used in investing activities was RMB2.952 billion, which was mainly due to the increase in time deposits and loans to the ultimate holding company.

Net cash used in ﬁnancing activities was RMB1.255 billion, which was mainly due to the dividend distribution and rental expenses of the leased right-of-use assets.

Based on the cash flows during the Reporting Period, the Group has adequate working capital. The Group will continue to strengthen the settlement of trade debts and reduce the use of working capital in operating activities. The Group will also continue to effectively manage the investment risk, as well as to expand the scale of investment and increase the return on capital.

(3) Summary of Financial Ratios

The following table sets forth the Group's key ﬁnancial ratios for the periods indicated:

Year ended 31 December
Main nancial ratios	2020
Net pro t margin (%)	4.6
Return on assets (%) (1)	3.4
Return on equity (%) (2)	8.4
Return on invested capital (%) (3)	8.6

2019

Main nancial ratios	As at 31 December 2020
Gearing ratio (%) (4)	1.1
Net debt to equity ratio (%) (5)	Net cash
Current ratio (6)	1.6
Quick ratio (7)	1.5

Proﬁt for the year

(1) Return on assets =
(2) Return on equity =
(Opening balance of total assets + Closing balance of total assets)/2
Proﬁt for the year
Total equity at the end of the year
Earnings before interest and tax (EBIT) for the year x (1 - effective income tax rate)
As at 31 December 2019
Net cash
(3) Return on invested capital =
(4) Gearing ratio =Total interest bearing debt at the end of the year + Total equity at the end of the year
(5) Net debt to equity ratio =
(6) Current ratio =
(7) Quick ratio =

Total interest bearing debt at the end of the year - Credit loans + Total equity at the end of the yearTotal interest bearing debt at the end of the yearNet debt at the end of the year

Total equity at the end of the yearCurrent assets
Current liabilitiesCurrent assets - Inventories
Current liabilities
0.7
1.6
1.6

Return on assets

During the Reporting Period, the Group's return on assets increased to 3.4% from 3.1% for the same period in 2019, mainly due to the increase in the proﬁt during the Reporting Period.

Return on equity

The Group's return on equity increased to 8.4% from 8.0% for the same period in 2019, mainly due to the increase in the proﬁt during the Reporting Period.

Return on invested capital

The Group's return on invested capital increased to 8.6% from 8.3% for the same period in 2019 for the same reason as the increase in return on equity.

Gearing ratio

The Group's gearing ratio increased to 1.1% from 0.7% at the end of 2019, mainly due to the increase in interest-bearing borrowings at the end of the Reporting Period.

Net debt to equity ratio

The Group maintained positive net cash as at 31 December 2019 and as at 31 December 2020.

Current ratio

The Group's current ratio was 1.6, which was basically the same as at the end of 2019.

Quick ratio

The Group's quick ratio was 1.5, which was basically the same as at the end of 2019.

SIGNIFICANT EVENTS

1 Corporate governance

During the Reporting Period, the Company was in compliance with the code provisions of the Corporate Governance Code set out in Appendix 14 to the Hong Kong Listing Rules and did not deviate from any code provision.

2 H Share Appreciation Rights Scheme

For the details of H Shares appreciation rights scheme of the Company, please refer to the announcements of the Company entitled "The Proposed Initial Terms of H Share Appreciation Rights Scheme" dated 21 August 2017, the circular of the Company in relation to the second extraordinary general meeting for the year 2017 dated 3 November 2017, the "Announcement in Relation to the Approval of the Proposed Initial Terms of H Share Appreciation Rights Scheme by the SASAC" dated 12 December 2017, the "Announcement of Resolutions Passed at the Second Extraordinary General Meeting for the Year 2017" dated 20 December 2017, the "Grant of H Share Appreciation Rights" dated 20 December 2017, the "Unfulfillment of the Conditions to the First Effective Phase of the Initial Grant Under the H Share Appreciation Rights Scheme" dated 30 July 2019, the contents in relation to the unfulﬁllment of the conditions to the second effective phase of the Initial Grant under the H Share Appreciation Rights Scheme in the 2019 annual report, and the contents in relation to the unfulﬁllment of the conditions to the third effective phase of the Initial Grant under the H Share Appreciation Rights Scheme in this annual report.

Unfulfillment of the Conditions to the Third Effective Phases of the Initial Grant under the H Share Appreciation Rights Scheme

According to Article 23 of Chapter 7 of the H Share Appreciation Rights Scheme, the conditions upon which the granted H Share Appreciation Rights become effective include conditions based on the Group's performance and conditions based on the performance of the relevant incentive recipients. The performance evaluation benchmarks on the Group for the third effective phase are as follows:

(1) the ROE of the ﬁnancial year immediately before the effective date shall not be lower than 10.0% and shall not be lower than 75 percentile of such growth rate of revenue of benchmark companies
(2) the growth rate of revenue of the ﬁnancial year immediately before the effective date as compared with that of the ﬁnancial year immediately before the grant shall not be lower than 29.3% and shall not be lower than 75 percentile of such growth rate of revenue of benchmark companies
(3) the EVA of the ﬁnancial year immediately before the effective date shall not be less than RMB2.373 billion

The Company will use the ﬁnancials prepared in accordance with the China Accounting Standards for Business Enterprises and the net proﬁt after deduction of non-recurring proﬁt or loss for the purposes of computing the ROE, the growth rate of revenue and the EVA stated above. The benchmark companies shall be those with similar business, in similar markets, with similar scale as the Group and with relatively stable historical operating performance.

The H Share Appreciation Rights initially granted by the Company on 20 December 2017 will enter into the third effective phase on 21 December 2021. According to the H Share Appreciation Rights Scheme, the "year before the third effective phase coming into effect" as speciﬁed in the conditions of the Initial Grant means the year of 2020. According to the audit report prepared by BDO China Shu Lun Pan Certiﬁed Public Accountants LLP, the domestic auditor of the Company, the ROE of the Company for the year of 2020 was 7.8%, the growth rate of revenue for the year of 2020 compared with that for the year of 2016 was 33.3%, and the EVA for the year of 2020 was RMB2.246 billion. Since the ROE for the year of 2020 is lower than 10.0%, and the EVA for the year of 2020 was less than RMB2.373 billion, the conditions to effect the H Share Appreciation Rights in the third effective phase of the Initial Grant were not fulﬁlled.

According to the authorisation granted to the Board at the second extraordinary general meeting for the year 2017, the Board has considered and approved a total of 4,468,620 units (representing 34% of the H Share Appreciation Rights under the Initial Grant) of H Share Appreciation Rights in the third effective phase of the Initial Grant shall be nulliﬁed in the ﬁfteenth meeting of the Third Session of the Board convened on 20 March 2021.

During the Reporting Period, save for the above unfulﬁllment of the conditions to the third effective phases of the Initial Grant under the H Share Appreciation Rights Scheme, there are no other matters in relation to the number of units and the exercise price of the H Share Appreciation Rights. For details of the Company's H Share Appreciation Rights Scheme, please refer to Note 38 of the consolidated ﬁnancial statements in this annual report.

3 The annual dividend distribution plan as at 31 December 2020

The ﬁfteenth meeting of the third session of the Board approved the dividend distribution plan for the year ended 31 December 2020. A ﬁnal cash dividend of RMB0.187 (inclusive of applicable taxes) per share would be distributed based on 4,428,000,000 shares (including 1,460,800,000 H shares and 2,967,200,000 domestic shares), being the total share capital of the Company as at 31 December 2020. The above dividend distribution plan will be submitted to the annual general meeting of shareholders in 2020 for review and approval.

The ﬁnal dividend will be paid on or before Monday, 19 July 2021 to all Shareholders whose names appear on the register of members of the Company at the close of business on Thursday, 20 May 2021. In order to qualify for the ﬁnal dividend, the holders of H Shares must lodge all share certiﬁcates accompanied by the transfer documents with Computershare Hong Kong Investor Services Ltd. (address: Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen's Road East, Wan Chai, Hong Kong) before 4:30 p.m. on Friday, 14 May 2021 for registration. For the purpose of ascertaining Shareholders who qualify for the dividend, the register of members for H Shares will be closed from Saturday, 15 May 2021 to Thursday, 20 May 2021 (both days inclusive).

The dividend will be denominated and declared in Renminbi. The holders of Domestic Shares will be paid in Renminbi and the holders of H Shares will be paid in Hong Kong dollars. The exchange rate for the dividend to be paid in Hong Kong dollars will be the mean of the exchange rates of Renminbi to Hong Kong dollars as announced by the People's Bank of China during the ﬁve business days preceding the date of approval of the ﬁnal dividend by the annual general meeting to be convened on 10 May 2021.

In accordance with the Enterprise Income Tax Law of the People's Republic of China (ʕശɛ͏΍ձ਷Άุה੻೼ج) and its implementation regulations, the Company is required to withhold and pay enterprise income tax at the rate of 10% on behalf of the non-resident enterprise Shareholders whose names appear on the register of members for H Shares when distributing the cash dividends. Any H Shares not registered under the name of an individual Shareholder, including HKSCC Nominees Limited, other nominees, agents or trustees, or other organisations or groups, shall be deemed as shares held by non-resident enterprise shareholders. Therefore, enterprise income tax shall be withheld from dividends payable to such Shareholders. If holders of H Shares intend to change their shareholder status, please enquire about the relevant procedures with their agents or trustees. The Company will strictly comply with the law and the requirements of the relevant government authority and withhold and pay enterprise income tax on behalf of the relevant Shareholders based on the register of members for H Shares as at Thursday, 20 May 2021.

If the individual holders of H Shares are Hong Kong or Macau residents or residents of the countries which had an agreed tax rate of 10% for the cash dividends given to them under the relevant tax agreement with the PRC, the Company should withhold and pay individual income tax on behalf of the relevant Shareholders at a rate of 10%. Should the individual holders of H Shares be residents of the countries which had an agreed tax rate of less than 10% under the relevant tax agreement with the PRC, the Company shall withhold and pay individual income tax on behalf of the relevant shareholders at a rate of 10%. In that case, if the relevant individual holders of H Shares wish to reclaim the extra amount withheld due to the application of 10% tax rate, the Company can apply for the relevant agreed preferential tax treatment provided that the relevant Shareholders submit the information required by the notice of the tax agreement to the H share registrar of the Company. The Company will assist with the tax refund of the extra amount withheld after obtaining the approval of the competent tax authority. Should the individual holders of H Shares be residents of the countries which had an agreed tax rate of over 10% but less than 20% under the tax agreement with the PRC, the Company shall withhold and pay the individual income tax at the agreed actual rate in accordance with the relevant tax agreement. In the case that the individual holders of H Shares are residents of the countries which have had an agreed tax rate of 20% under the relevant tax agreement with the PRC, or which has not entered into any tax agreement with PRC, or otherwise, the Company shall withhold and pay the individual income tax at a rate of 20%.

For investors investing in the H Shares of the Company listed on the Hong Kong Stock Exchange through the Shanghai Stock Exchange or Shenzhen Stock Exchange (including enterprises and individuals) (the "Southbound Trading"), the Company has entered into the Agreement on Appropriation of Cash Dividends of H Shares for Southbound Trading 《( ಥٰஷHٰٰୃତږߎлݼ ೯՘ᙄ》) with China Securities Depository and Clearing Corporation Limited, pursuant to which, China Securities Depository and Clearing Corporation Limited, as the nominee of the holders of H Shares for Southbound Trading, will receive all cash dividends distributed by the Company and distribute the cash dividends to the relevant investors of H Shares of Southbound Trading through its depositary and clearing system. The cash dividends for the investors of H Shares of Southbound Trading will be paid in Renminbi.

Pursuant to the relevant requirements under the "Notice on the Tax Policies Related to the Pilot Program of the Shanghai-Hong Kong Stock Connect" (Caishui [2014] No. 81) 《( ᗫ׵လಥٰୃ̹ఙʹ׸ʝᑌʝஷዚՓ༊ᓃϞᗫ೼ϗ݁ഄٙஷٝ》(ৌ೼[2014]81໮) and the "Notice on the Tax Policies Related to the Pilot Program of the Shenzhen-Hong Kong Stock Connect" (Caishui [2016] No. 127) 《( ᗫ׵ଉಥٰୃ̹ఙʹ׸ʝᑌʝஷዚՓ༊ᓃϞᗫ೼ϗ݁ഄٙஷٝ》(ৌ೼[2016]127໮)), for dividends received by domestic investors from investing in H shares listed on the Hong Kong Stock Exchange through Shanghai-Hong Kong Stock Connect or Shenzhen-Hong Kong Stock Connect, the company of such H shares shall withhold and pay individual income tax at the rate of 20% on behalf of the investors. For dividends received by domestic securities investment funds from investing in H shares listed on the Hong Kong Stock Exchange through Shanghai-Hong Kong Stock Connect or Shenzhen-Hong Kong Stock Connect, the tax payable shall be the same as that for individual investors. The company of such H shares will not withhold and pay the income tax of dividends for domestic enterprise investors and those domestic enterprise investors shall report and pay the relevant tax themselves.

4 Connected Transactions

Continuing Connected Transactions between the Group and Sinopec Group

During the Reporting Period, the Group entered into a series of continuing connected transactions or agreements with Sinopec Group, including the following:

(1) the Engineering and Construction Services Framework Agreement and the supplemental agreement;
(2) the Financial Services Framework Agreement and the supplemental agreement;
(3) the Technology R&D Framework Agreement and the supplemental agreement;
(4) the General Services Framework Agreement and the supplemental agreement;
(5) the Land Use Right and Property Lease Framework Agreement;
(6) the Counter-guarantees provided by Sinopec Group;
(7) the Safe Production Insurance Fund; and
(8) the Trademark Licensing Agreement.

For further details, please refer to the section headed "Connected Transactions" in the Company's prospectus published on 10 May 2013, the Company's announcement entitled "Continuing Connected Transactions - Financial Services Framework Agreement" published on 19 August 2013, the contents related to the Financial Services Framework Agreement in the Company's circular to its shareholders published on 10 September 2013, the Company's announcement entitled "Adjustments to Annual Caps for Continuing Connected Transactions under the Technology R&D Framework Agreement" published on 17 March 2014, the contents in relation to the Financial Services Framework Agreement and the Engineering Services Framework Agreement in the Company's circular to its shareholders published on 15 September 2015, the Company's announcement entitled "Renewal of Technology R&D Framework Agreement, Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement and the Annual Caps" published on 31 August 2015, the Company's announcement entitled "Renewal of Technology R&D Framework Agreement, Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement and the Annual Caps and the Continuing Connected Transactions and Major Transactions under the Financial Services Framework Agreement" published on 15 September 2015, the Company's announcement entitled "Renewal of the General Services Framework Agreement, the Technology R&D Framework Agreement, the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement and the Annual Caps and Major Transactions and the Continuing Connected Transactions under the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement" published on 21 August 2018 and the contents in relation to the Financial Services Framework Agreement and the Engineering Services Framework Agreement in the Company's circular to its shareholders published on 19 September 2018.

The Group's Connected Transactions

During the Reporting Period, the aggregate value of the connected transactions entered into by the Group was RMB37.334 billion. In particular, the expenses amounted to RMB3.513 billion and the revenue amounted to RMB33.821 billion (including RMB33.135 billion from the sale of products and services and RMB686 million from interest income), thus satisfying the exemption requirements speciﬁed by the Hong Kong Stock Exchange.

During the Reporting Period, the engineering and construction services (supply of equipment and materials, procurement of services and equipment leasing, technology licensing and other engineering-related services) provided by Sinopec Group to the Group amounted to RMB3.472 billion, which was within the annual cap. The engineering and construction services (engineering consulting, technology licensing, engineering design, EPC contracting, construction and equipment manufacturing, etc.) provided by the Group to Sinopec Group amounted to RMB32.932 billion, which was within the annual cap.

During the Reporting Period, the service fees in relation to the settlement and other ﬁnancial services between the Group and Sinopec Finance Co., Ltd. and Sinopec Century Bright Capital Investment Limited were RMB2 million, which was within the annual cap. The maximum daily balance of deposits and interest income was RMB7.873 billion, which was within the annual cap. The maximum daily balance of entrustment loans was RMB21 billion, which was within the annual cap.

During the Reporting Period, the technology R&D services provided by the Group to Sinopec Group amounted to RMB194 million, which was within the annual cap.

During the Reporting Period, the general services provided by Sinopec Group to the Group amounted to RMB35 million, which was within the annual cap.

During the Reporting Period, the land use right and property lease Service provided by the Group to Sinopec Group amounted to RMB9 million, which was within the annual cap.

During the Reporting Period, the land use right and property lease Service provided by Sinopec Group to the Group amounted to RMB3 million, which was within the annual cap.

In terms of the premium payable under the documents on safe production funds, the amount payable by the Group shall not be less than the amount speciﬁed in these documents.

For more information on the major related parties transactions (including the above-mentioned connected transactions) during the Reporting Period, please refer to Note 42 of the consolidated ﬁnancial statements prepared in accordance with the IFRS in this annual report, among which the above transactions constitute connected transactions, and the Company has complied with the relevant requirements under Chapter 14A of the Hong Kong Listing Rules in relation to these connected transactions.

The above-mentioned connected transactions during the Reporting Period were approved at the tenth meeting of the Third Session of the Board. The connected transactions carried out during the Reporting Period are in compliance with the Hong Kong Listing Rules.

The external auditor of the Company was engaged to report on the Group's continuing connected transactions in accordance with Hong Kong Standard on Assurance Engagements 3000 (Revised) "Assurance Engagement Other Than Audits or Reviews of Historical Financial Information" and Practice Note 740 "Auditor's Letter on Continuing Connected Transactions" under the Hong Kong Listing Rules" issued by Hong Kong Institute of Certiﬁed Public Accountants. The auditor has issued an unqualiﬁed letter containing the conclusions in respect of the above-mentioned continuing connected transactions in accordance with Rule 14A.56 of the Hong Kong Listing Rules and submitted a copy of the auditor's letter to the Hong Kong Stock Exchange.

Opinions of Independent Non-executive Directors on the Above-mentioned Continuing Connected Transactions (including Deposits and Entrustment Loan Transactions under the Financial Services Framework Agreement)

The independent non-executive Directors reviewed the nature, implementation of annual caps, pricing policy and internal control procedure of the above-mentioned continuing connected transactions (including deposits and entrustment loans under the Financial Services Framework Agreement), and conﬁrmed as follows:

(a) The transactions were entered into in the ordinary and usual course of business of the Group;
(b) One of the following items was met:
- i The transactions were entered into on normal commercial terms;
- ii If there were not sufficient comparable transactions to decipher whether the transactions were on normal commercial terms, the transactions under the relevant agreements were entered into on terms no less favourable to the Company than terms available to or from independent third parties (as the case may be); or
- iii If there were no appropriate assessments to determine whether the transactions met the conditions under (i) and (ii) above, the transactions were entered into on terms that were fair and reasonable to the shareholders of the Company; and

(c) The transactions were conducted in accordance with the relevant agreements and the terms are fair and reasonable and in the interests of the Company and the shareholders of the Company as a whole.

5 Material Litigation or Arbitration Events

The Company was involved in claims which arose in connection with the collapse of a partially completed oil storage tank of the oil and gas storage tank project in Alberta, Canada on 24 April 2007, which resulted in the deaths of two workers and injuries of four others. The case has not progressed for a long time. At present, the Company has submitted an application for formal withdrawal to the court, waiting for the court to hear the application.

There were no other material litigation or arbitration events during the Reporting Period.

6 Other Material Contracts

Save as disclosed in this annual report, the Group had no other contracts of signiﬁcance which should be disclosed during the Reporting Period.

7 Repurchase, Sale and Redemption of Shares

During the Reporting Period, the Group did not repurchase, sell or redeem any securities of the Company.

8 Reserves

During the Reporting Period, movements in the reserves of the Group were set out in the consolidated statement of changes in equity of the ﬁnancial report, which was prepared in accordance with IFRS in this annual report.

9 Use of IPO Proceeds

During the Reporting Period, the Group used a total of RMB200 million net proceeds from the global offering, which was mainly used for newly added long-term equity investment amounted to RMB120 the purchase of large-scale lifting and transportation equipment and specialized construction equipment amounted to RMB36 million, the construction of engineering technology research and development center, modular construction base and mechanical manufacturing project amounted to RMB20 million, and the construction of information system amounted to RMB24 million. As at the end of the Reporting Period, the total amount of net proceeds from the global offering used by the Group amounted to RMB4.566 billion, and the remaining balance of the net proceeds from the global offering was approximately RMB6.591 billion (approximately RMB580 million of the unused net proceeds for establishing an engineering and technological R&D center, modular construction base and machinery manufacturing projects; approximately RMB300 million of the unused net proceeds for improving and developing overseas marketing networks; approximately RMB453 million of the unused net proceeds for information technology development projects; approximately RMB364 million of the unused net proceeds for purchasing large lifting and transport equipment and specialised construction equipment; approximately RMB1.035 billion of the unused net proceeds for newly added long-term equity investment; and approximately RMB3.859 billion of the unused net proceeds for mergers and acquisitions of engineering companies, purchase of patents and proprietary technologies and other items). The expected timeline for the use of net proceeds will be subject to the business development of the Company. The use of proceeds from the global offering by the Company is in consistence with that previously disclosed in the announcement. For details of the use of proceeds, please refer to the announcements of the Company entitled "Adjustment in Use of Proceeds from the Global Offering" dated 13 December 2013 and the "Adjustment in the Allocations of the Use of Proceeds from the Global Offering" dated 26 October 2018. During the Reporting Period, there was no material change to the use of proceeds from the global offering of the Group.

10 Assets Transactions

During the Reporting Period, the Group has no material assets transactions other than in the ordinary and usual course of business.

11 Insolvency and Restructuring

During the Reporting Period, the Group was not involved in any insolvency or restructuring matters.

12 Material Trusteeship, Contracting and Lease

During the Reporting Period, the Group was not involved in any material trusteeship, contracting or lease of any asset of other companies, nor placing its assets to or under any other companies' trusteeship, contracting or lease which were required to be disclosed.

13 Material Acquisitions and Disposal

During the Reporting Period, the Group has not made any material acquisition or disposal of subsidiaries, associates and joint ventures.

14 Financial Derivatives for Hedging Purposes

During the Reporting Period, the Group did not use any ﬁnancial derivative for hedging purposes.

15 Pledged Assets

During the Reporting Period, the Group has no pledged assets.

16 Debt

The Group had USD25 million (about RMB163 million) loans to the fellow subsidiaries as at the end of the Reporting Period.

17 Contingent Liabilities

For details of the contingent liabilities of the Group, please refer to Note 41 to the ﬁnancial statements contained in this annual report.

18 Review of Annual Report

The audit committee of the Company has reviewed this annual report. The audit committee did not have any disagreement concerning the ﬁnancial statements contained in this annual report.

The audit committee is comprised of all independent non-executive Directors, namely, Mr. YE Zheng, Mr. HUI Chiu Chung, Stephen and Mr. JIN Yong. Among them, Mr. YE Zheng has the appropriate professional qualiﬁcations (including being a member of the Hong Kong Institute of Certiﬁed Public Accountants) and more than 25 years of experience in auditing, internal control and consultancy.

19 Signi cant Events Affecting the Group After the Reporting Periods

From 31 December 2020 and up to the date of this annual report, the Group has no other signiﬁcant events.

20 Other Important Matters

During the Reporting Period, none of the Company, the Board, any Director or any Supervisor was punished by administrative means or public sanctioned by Hong Kong Securities and Futures Commission, or publicly condemned by the Hong Kong Stock Exchange.

CORPORATE GOVERNANCE

1 Enhancement of Corporate Governance in the Reporting Period

During the Reporting Period, the Company was strictly in compliance with the domestic and foreign laws and regulations on securities regulation and continuously improved its corporate governance.

During the Reporting Period, in accordance with relevant domestic and foreign laws and regulations and its actual situation, the Company strictly standardised corporate governance based on the working rules, systems and norms such as the Rules and Procedures for the Shareholders Meetings, the Rules and Procedures for the Board Meetings and the Rules and Procedures for the Supervisory Committee and updated the internal documents in accordance with the Hong Kong Listing Rules and other applicable laws and regulations in a timely manner; continuously improved the quality of investor relations and information disclosure, receiving the recognition of the capital market; modiﬁed its internal control system to intensify the execution thereof.

During the Reporting Period, the Company further enhanced on-the-job trainings to enhance the awareness of responsibility of all Directors, Supervisors and its senior management (the "Senior Management"), optimised the procedures and detailed services. The Company also provided Directors with reports of "Company Information" every month, which provided the Directors with relevant data and information to make reasonable decisions. The Company also continued to enhance voluntary information disclosure and the relationship with investors by strengthening two-way communication and increasing the transparency of the Company. The Company actively performed its social responsibilities and promoted its sustainable development.

During the Reporting Period, the Supervisory Committee had no disagreement to any supervised matters. Furthermore, none of the Company, the Board, any Director, any Supervisor, any senior management member, any of the controlling shareholders or de facto controllers was punished by administrative means or public sanctioned by Hong Kong Securities and Futures Commission, or publicly condemned by the Hong Kong Stock Exchange.

2 Equity Interests of Directors, Supervisors and the Senior Management Members

During the Reporting Period, none of the Directors, Supervisors or any member of the Senior Management, as well as their respective associates had any interests or short positions in any Shares, underlying Shares or debentures of the Company or any associated corporations (as deﬁned under Part XV of the SFO) which were required to be notiﬁed to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to have under such provisions of the SFO), or which were required, pursuant to section 352 of the SFO, to be entered in the register maintained by the Company referred to therein, or which are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code") in Appendix 10 to the Hong Kong Listing Rules, to be notiﬁed to the Company and the Hong Kong Stock Exchange that are regarded, or treated as being held, in accordance with the SFO in the shares of the Company or any associated corporation. Based on speciﬁc enquiries to all Directors and Supervisors, all Directors and Supervisors have confirmed that they complied with the standards stipulated in the Model Code during the Reporting Period.

3 Con rmation of Independence of Independent Non-executive Directors and Overview of their Performance

The Company has a sufficient number of independent non-executive Directors with appropriate professional qualifications or accounting or related ﬁnancial management expertise in accordance with the Hong Kong Listing Rules. The Company appointed three independent non-executive Directors, namely Mr. HUI Chiu Chung, Stephen, Mr. JIN Yong and Mr. YE Zheng. The Company received an annual conﬁrmation letter from each of independent non-executive Directors regarding their compliance with relevant independence requirements set out in Rule 3.13 of the Hong Kong Listing Rules. The Company considers all of its independent non-executive Directors to be independent.

During the Reporting Period, the independent non-executive Directors earnestly fulfilled their responsibilities prescribed by relevant laws, regulations and the Articles of Association and made positive contributions to the development of the Group. They actively attended the meetings of the Board and its special committees (for details about the attendance of the meetings, please refer to the Report of the Board in this annual report), carefully reviewed relevant documents, and made judgment with their own expertise in offering advices and suggestions on the development strategy, production and operation, internal control, risk management and social responsibility of the Company. The independent non-executive Directors also provided independent opinions according to regulations on connected transactions, external guarantee, dividend distribution plan and appointment of senior management members of the Company. The independent non-executive Directors maintained timely and effective communications with the executive Directors, management, external auditors and internal supervision and audit department and conducted several domestic and overseas investigations or surveys to better understand the Company's practice on internal control, internal audit, risk management, environmental protection and social responsibility, information disclosure and oversea project implementation. The independent non-executive Directors also independently and objectively safeguarded the legitimate rights and interests of the Company and investors, especially the medium and minority investors, during the performance of their duties.

4 The Company's Independence from the Controlling Shareholder

After obtaining conﬁrmations from the Company and Sinopec Group, the following statements are declared:

From 1 January 2020 to 31 December 2020, Sinopec Group complied with the principles and terms of the Non-Competition Agreement and the undertakings therein, fulfilled obligations and responsibilities in accordance with the Non-Competition Agreement and the undertakings therein, and did not violate the Non-Competition Agreement and the undertakings therein. The aforesaid was concluded based on Sinopec Group's overall review of the compliance with each provision (including but not limited to the provision of options for new business opportunities, options for acquisitions and pre-emptive rights) under the Non-Competition Agreement and the undertakings therein.

Opinions of the independent non-executive Directors of the Company regarding the compliance with the Non-Competition Agreement of Sinopec Group are as follows:

Based on the review of relevant situations, the independent non-executive Directors of the Company are of the view that during the Reporting Period, Sinopec Group performed and complied with the Non-Competition Agreement entered into with the Company.

5 Construction and Implementation of Internal Control System of the Group

Internal Control Construction

During the Reporting Period, the Company continued to improve the "Internal Control Manual of the Company" (the "Internal Control Manual"). Internal Control Manual regulates internal management, prevents operational risks and guarantees the realisation of the development strategies and operation goals of the Company. The Internal Control Manual was in compliance with domestic and overseas regulatory requirements such as the "Basic Standard for Internal Control of Enterprises", the "Implementation Guidelines for Internal Control of Enterprises", and the "Guidelines for Assessment of Internal Control of Enterprises", which was jointly issued by ﬁve ministries and commissions including the Ministry of Finance of PRC, as well as the requirements under the SFO and the Hong Kong Listing Rules, and established a comprehensive internal control system. The risk-oriented Internal Control Manual has realised the top-down integrated management of business processes, uniﬁcation of internal management standards in business control, business management has realised the integration of risk, internal control and system. The Company pays high attention to the level of internal control and risk prevention. The internal control manual has further taken effective measures to strengthen internal control, leading to all-round enhancement of internal control.

Working Plans for Establishment and Improvement of Internal Control System and Implementation

The Company prepares annual goals and working plans with regard to internal control, and conducts comprehensive trainings, daily management and evaluation. Under the uniform deployment of the Company, the subsidiaries of the Company, through summary, revision and organisation of their respective management systems and implementation of various internal control requirements, has realised effective fusion of internal control, business and system. The Company has established three lines of defense for continuous supervision of internal control, namely, regular testing of departments (units) in charge of internal control, daily management of departments in charge of internal control, and comprehensive audit, inspection and evaluation, which as a whole form an internal control supervision and evaluation system.

Setup of Internal Control Examination and Supervision Department

The Department of Risk Management of the Company, which is assigned to administer the overall supervision of internal control, is responsible for the daily supervision of internal control and the organisation of individual inspection. The Supervision and Audit Department is in charge of internal control evaluations and independent comprehensive inspections and evaluation of internal control. The Company and its subsidiaries have established a two-level internal control inspection and evaluation system where the subsidiaries of the Company conduct self-inspections and evaluate internal control annually and the Company inspects the evaluation of internal control annually in a comprehensive manner.

Improvement of the Internal Control System Associated with Financial Accounting

The Internal Control Manual of the Company speciﬁes the internal control requirements with regard to the ﬁnancial statements and establishes connections with the professional management system. Fund and asset management, costs and expenses accounting and management, ﬁnancial analysis and budget, connected transactions and the preparation of ﬁnancial statements, are respectively included in the related work ﬂow, control procedures and control points. At the same time, items and matters in accounting statements are connected with control measures, so that the internal control measures can provide reasonable assurance that the disclosed ﬁnancial statements are authentic and reliable.

Internal Control De ciencies and Recti cation

During the Reporting Period, no material internal control deﬁciency was identiﬁed. For the other general deﬁciencies of internal control discovered during the inspection, the management of the Company has designed and adopted various rectification measures, and discussed these measures with external auditors of the Company. After a follow-up examination, all internal control issues relating to ﬁnancial reporting were rectiﬁed during the Reporting Period. Other management deﬁciencies were rectiﬁed or addressed by adopting the relevant rectiﬁcation measures. The rectiﬁcation was in compliance with relevant requirements.

Businesses with Sanctioned Countries

In 2016 and 2017, the Group entered into the engineering, procurement and construction ("EPC") contract with National Iranian Oil Engineering and Construction Company in relation to Iranian Abadan Reﬁnery Product Upgrading Project Phase I and Phase II, respectively (the "Pertinent Projects"). For details, please refer to the announcements published by the Company on 22 February 2017, 27 December 2017 and 23 February 2018.

In order to monitor the possible sanction risks faced by the Company and ensure compliance with the related undertakings made to the Hong Kong Stock Exchange, the Company has adopted sufficient and effective internal control measures, including renewal of the appointment of outsourced international legal counsels with necessary expertise and experience in dealing with legal matters related with sanction and convening the risk management committee meetings to evaluate and monitor sanction risks faced by the Group. From 2016 to 2020, the Group completed evaluations on the legal and operating risks related with the Pertinent Projects and sanctions according to the internal control procedures and the relevant information. During the Reporting Period, the Company did not violate the related undertakings.

Arrangement for Internal Control by the Board

The Board will review the updated Internal Control Manual annually. The Board is responsible for the communication, supervision and inspection of internal and external auditing through the Audit Committee, as well as the inspection and supervision of the effectiveness of self-evaluation of internal control.

Inside information management system

During the Reporting Period, with due consideration of the information disclosure requirements under the Hong Kong Listing Rules and the Guideline for Disclosure of Inside Information issued by the Securities and Futures Commission in June 2012, the Group instructed special institution and staff to take responsibilities for the registration and management of persons who are aware of inside information. The Company also established the management archive of persons who are aware of inside information, updated the archive regularly and conducted regular trainings to persons who are aware of inside information and management staff, so as to strengthen their consciousness to comply with the relevant law.

The Group prohibits senior management members and employees who are likely to be aware of the Group's unpublished inside information or other information about the Group from using conﬁdential or inside information without authorisation in accordance with the relevant stipulations of the Inside Information Disclosure Guideline. At the same time, in case of any enquiry about the affairs of the Group, only the secretary to the Board and the relevant authorised personnel are responsible for communicating with external persons.

6 Assessment and Incentive Mechanism for the Senior Management Members

The implementation details of the H shares appreciation rights scheme of the Group are set out in the section headed "SIGNIFICANT EVENTS - 2 H Share Appreciation Rights Scheme" from page 62 to page 63 of this annual report.

7 Corporate Governance Report (pursuant to the Hong Kong Listing Rules)

(1) Compliance with Corporate Governance Code

From the listing date of the Company to 31 December 2020, the Company was in compliance with the code provisions of the Corporate Governance Code set out in Appendix 14 to the Hong Kong Listing Rules and did not deviate from any code provision.

A Board

A.1 Board

a. The Board is the decision-making body of the Company, and all decisions made by the Board are carried out by the management of the Company. The Board follows sound corporate governance practices and procedures, operates standardly, and commits itself to improving the corporate governance of the Company.

b. The Board holds at least four meetings annually. The Board communicates the time and subject matters 14 days prior to the meeting. The documents and materials for the meeting will usually be distributed 10 days in advance to each Director. In 2020, the Company held ﬁve Board meetings. For details of the attendance of each Director, please refer to the Report of the Board in this annual report.

c. Each member of the Board may submit proposals to be included in the agenda for Board meetings, and each Director is entitled to request other related information.

d. The Board reviewed and evaluated its performance for the past year. The Board was of the view that the composition of the Board was appropriate and balanced. The Board made decisions in compliance with domestic and foreign laws and regulations and the Company's internal rules, prudently listened to the report of the Supervisory Committee, and safeguarded the rights and interests of the Company and its Shareholders. The Directors and the Senior Management diligently fulﬁlled their responsibilities and actively took part in trainings and continuing professional development, which led to the improvement of governance of the Company.

e. The secretary to the Board and company secretary will assist the Directors in handling the routine tasks of the Board and continuously provide the Directors with and keep them informed of the regulations, policies and other requirements of domestic and overseas regulatory bodies in relation to corporate governance, and ensure that in performing their duties and responsibilities, the Directors comply with domestic and foreign laws and regulations as well as the Articles of Association. The Company has purchased liability insurance for all the Directors to minimise any risk which may arise from the performance of their duties.

A.2 Chairwoman of the Board and President

a. Mdm. SUN Lili serves as the Chairwoman of the Board, Mr. JIANG Dejun serves as the President. The Chairwoman of the Board is elected by the majority of the Directors, while the President is nominated and appointed by the Board. The duties and responsibilities of the Chairwoman of the Board and the President are clearly distinguished from each other and the scope of their respective duties and responsibilities are set out in the Articles of Association.

b. The Chairwoman of the Board highly values the communication with the independent non-executive Directors and will hold meetings with them at least once each year without the presence of other Directors.

c. The Chairwoman of the Board encourages open and active discussions. Directors may speak freely and actively participate in discussions on production and operation, corporate governance and material investments of the Company in Board meetings.

A.3 Board Composition

a. As at the date of this annual report, the Board consists of seven members, with one female Director (for details, please refer to the section headed "Directors, Supervisors, Other Members of Senior Management and Employees" of this annual report). All Directors have rich experience in specialties and governance. Among the seven (7) members, there are 3 independent non-executive Directors. The independent non-executive Directors represent at least one-third of the Board. All the Directors are experienced in the management of refining and chemical engineering, or petroleum and petrochemical enterprise. The independent non-executive Directors are well-known technological experts of chemical engineering, ﬁnancial and accounting, respectively, and have experiences in managing large corporations, capital operation and ﬁnance investments, respectively. The composition of the Board is reasonable and diversiﬁed.

b. There is no ﬁnancial, business, family or other material/relevant relationship between the board members of the Company (especially between the Chairwoman of the Board and the President) except for the working relationship.

c. The Company received the confirmation letter for the year 2020 from each of the independent non-executive Directors regarding his compliance with relevant independence requirements as set out in Rule 3.13 of the Hong Kong Listing Rules. The Company considers each of the independent non-executive Directors to be independent.

A.4 Appointment, Re-election and Dismissal

a. The term of office of each Director (including non-executive Directors) is 3 years, and the term of office (excluding the ﬁrst tenure) of any independent non-executive Director may not be renewed for more than 6 years. If an independent non-executive Director has already served 9 years, his further appointment shall be subject to a separate resolution to be approved at the Shareholders meeting.

b. All Directors will be elected through legal procedures, and the Board has no power to appoint temporary Directors.
c. For newly appointed Directors, the Company will engage professional consultants to prepare detailed materials, inform such Directors of regulatory requirements of the place where the Company is listed and remind such Directors of their rights, obligations and responsibilities.

A.5 Nomination Committee

a. The Company has established a nomination committee (the "Nomination Committee"). Mdm. SUN Lili, the Chairwoman of the Board, and is the chairwoman of the Nomination Committee. Mr. HUI Chiu Chung, Stephen, an independent non-executive Director, is the vice chairman of the Nomination Committee. Mr. XIANG Wenwu, the Vice Chairman of the Board, and Mr. JIN Yong and Mr. YE Zheng, each an independent non-executive Director, are members of the Nomination Committee. The terms of reference of the Nomination Committee have been established and are available on the websites of the Company and the Hong Kong Stock Exchange. The Nomination Committee will recommend the appointment or re-election of the Directors as well as the succession plan of Directors (especially the Chairwoman of the Board and the President of the Company), seek candidates for directorship with appropriate qualifications and competence; elect and nominate relevant personnel to be appointed as Directors, and propose recommendations thereof to the Board. The Nomination Committee is also responsible for evaluating the independence of independent non-executive directors.

b. After discussions and consideration, the Nomination Committee was of the view that the structure, number of members and composition of the Board in 2020 were reasonable and in consistence with the strategies of the Group.

c. Nomination Committee members may engage independent professionals when performing duties. Reasonable costs arising from or in connection with such consultation are borne by the Group. The expenses of the Nomination Committee will be included in the budget of the Company.

d. Please refer to the "Report of the Board - Meetings Held by the Special Committees of the Board" of this annual report for information about meetings held by the Nomination Committee.

e. The Board has established the Board Diversity Policy, which provides that the nomination and appointment of Board members should be based on the skills and experience necessary for the overall sound operation of the Board, with due considerations given to the goal and requirement for the diversiﬁcation of Board members. When determining the composition of Board members, the Company should consider their diversity from multiple aspects, including but not limited to sex, age, culture, educational background, race, professional experience, skills, knowledge and length of service.

f. Board Diversity Policy has set up two measurable objectives, (1) to consider candidates for appointment as directors from a wide pool of talents taking into account the culture, educational background, expertise and professional experience, skills, experience, and other contributions that would complement the current needs of the Board, and (2) to review whether the composition and structure of the Board is suitable for the overall development strategy of the Group based on its business operation and the developmental need on an annual basis and to propose adjustment and implementation plans where appropriate.

During the Reporting Period, the progress made by the Group regarding such measurable objectives are as follows: (1) selection and appointment of the Directors of the Company is in compliance with the requirements of the Board Diversity Policy and in line with the overall development strategy of the Group. The Nomination Committee will identify the candidates for directorships and make recommendation to the Board according to the Board Diversity Policy of the Company for any replacement of Director or an addition to the Board. The Board would also appoint suitable candidates for directorship based on the overall development of the Group and the Board Diversity Policy of the Company; and (2) the current composition and structure of the Board of the Company is appropriate for the development need of the existing business operation of the Group and is conducive for providing the Company with extensive valuable advice and supervision on decision-making. The Company will continually assess the diversity of the Board and objectively consider the composition and effectiveness of the Board.

A.6 Responsibility of Directors

a. All the non-executive Directors of the Company have the same duties and authorities as executive Directors. In addition, the non-executive Directors, especially the independent non-executive Directors, are vested certain speciﬁc powers. The rights and obligations of Directors and non-executive Directors (including the independent non-executive Directors) are clearly deﬁned in the Articles of Association and the Rules and Procedures for the Board Meetings.

b. All Directors were able to devote sufficient time and effort in handling the matters of the Company.
c. The Company has adopted Model Code as code of conduct regarding the Directors' securities transactions. All Directors of the

Company have conﬁrmed that they have been in compliance with the Model Code during the Reporting Period.

d. The Company is responsible for arranging trainings for Directors and providing for the corresponding expenses. The Directors actively participated in continuing professional development. The Company has received the training records from Directors. For details, please refer to the Report of the Board in this annual report.

A.7 Provision for and Access to Information

a. The meeting agenda as well as other reference documents of the Board and each special committee will be distributed prior to the meetings so that each member will have sufficient time to review, which enables them to have comprehensive discussions at the meetings. Each Director can obtain all related information in a comprehensive and timely manner, and may seek advice from professional consultants if needed.

b. The secretary to the Board is responsible for organising and preparing materials for the Board meetings, including the explanation for each proposal to ensure thorough understanding by each Director. The management of the Group shall provide the Directors with necessary information and materials. The Director may request the President, or request, via the President, relevant departments to provide necessary information of the Group or related explanations.

B Remuneration of Directors and the Senior Management

a. The Company has established a remuneration committee (the "Remuneration Committee"). Mr. HUI Chiu Chung, Stephen, an independent non-executive Director, is the chairman of the Remuneration Committee, and Mr. YE Zheng and Mr. JIN Yong, each an independent non-executive Director, are members of the Remuneration Committee. The terms of reference of the Remuneration Committee are available on the websites of the Company and the Hong Kong Stock Exchange. The Remuneration Committee is responsible for studying the compensation structures and policies of all Directors, Supervisors and Senior Management members and making recommendations to the Board or determining the compensation and welfare of individual executive Director and Senior Management member as authorised by the Board or making recommendations to the Board. The remuneration of Directors shall be determined in accordance with relevant laws and regulations of the PRC and the internal measures on remuneration of the Company. The Remuneration Committee appointed the advisory member to assist the Remuneration Committee in carrying out daily works. The expenses of the Remuneration Committee are included in the budget of the Company.

b. The Remuneration Committee consults the Chairman and Vice Chairman of the Board regarding the remuneration recommendations for other executive Directors. As assessed by the Remuneration Committee, it considered that for the year 2020, each of the executive Directors has fulﬁlled his/her responsibilities as stipulated under the service contract entered into with the Company.

c. Please refer to "Report of the Board - Meetings Held by the Special Committees of the Board" of this annual report for information about meetings held by the Remuneration Committee.

C Accountability and Auditing C.1 Financial Reporting

a. The Directors are responsible for supervising the compilation of accounts in each ﬁnancial period, which shall be prepared on a going concern basis, and should ensure that the accounts can authentically and fairly reﬂect the business conditions, operating results and cash ﬂows of the Group during the corresponding period. The Board approved the ﬁnancial statements for the year 2020 and warranted that there were no misrepresentations, misleading statements or material omissions contained in this annual report, and take jointly and severally responsibility for the authenticity, accuracy and integrity of the contents therein.

b. The Company provides ﬁnancial information, production and operation status to the Directors every month to ensure that the Directors are informed of the Company's latest developments in a timely manner.

c. The Company adopted an internal control mechanism to ensure that the management and relevant departments provide sufficient ﬁnancial data and related explanations to the Board and the Audit Committee.

d. The external auditors of the Company issued a statement about their reporting responsibilities in the ﬁnancial statements contained in the independent auditors' report.

C.2 Risk Management and Internal Control

a. The Company has established a comprehensive and basic process for risk management that is composed of target setting, risk identiﬁcation, risk assessment, risks reaction, supervision and improvement. At the beginning of each year, the Company and its subsidiaries will take into account then production and operation situation to analyse the changes and impact of the internal and external environment, identify the risk factors and major risk areas confronting various professional ﬁelds, rank and evaluate the identiﬁed risks, work out countermeasures and indicators of monitoring and early warning, to address the major and principal risks and place operation risks under dynamic monitoring.

b. The Company has deeply integrated risk management with internal control. In the internal control matrix, risks are described according to the Company's list of risks and, on this basis, the internal control measures have been modiﬁed and improved to take risk prevention counter-measures in daily business management activities. The Company has clariﬁed the responsible parties and strengthened supervision and inspection through means including internal control evaluation to ensure that its internal risks are controllable and being under control.

c. The Board is the highest decision-making authority for the Company's overall risk control measures. The Board acknowledges that it is its responsibility to ensure that the Company has established and maintained appropriate and effective risk management and internal control systems, and has the responsibility to review the effectiveness of these systems. Such systems are designed to manage rather than eliminate risks such as failure to achieve business objectives, and can only provide reasonable, but not absolute, assurance against material misstatement or loss. The Company has established the Risk Management Committee to organise and lead the comprehensive risk management and internal control efforts of the Company. The departments and subsidiaries of the Company speciﬁcally implement overall risk management and internal control measures. They are responsible for promptly identifying, analysing and evaluating the risks in production and operations to put forward the counter-measures and solutions for internal control that are to be implemented afterwards.

d. For the purpose of inspecting and evaluating the internal risk control measures of the Company, the risk management departments of the Company and its subsidiaries will test on the implementation of internal control on a quarterly basis. The supervision and audit department of the Company will carry out comprehensive annual inspections and evaluations on the effectiveness of the risk-oriented internal control design and operation of the Company. The general procedures of inspection and evaluation mainly include drawing up a plan for inspection and evaluation of internal control, setting up a working group for inspection and evaluation of internal control, implementing online testing of the internal control system or onsite inspection and evaluation, identifying the deﬁciencies in internal control, re-checking and conﬁrming the deﬁciencies, arriving at a conclusion based on onsite evaluation, summarising and analysing the results of inspection and evaluation, compiling the seasonal test report of internal control as well as the annual and interim work report on risk management and internal control, and regularly reporting to the management members and the Board.

e. The Company prepares and issues regular reports such as annual reports and interim reports in accordance with the requirements of the place where the Company is listed. The regular reports are reviewed by the executives and considered by the management of the Company before being submitted to the Board and the Supervisory Committee for approval. The Company office (office of the Board) will ﬁnalise the regular reports according to the opinions of the Board and disclose the reports together with other relevant documents required to be submitted and disclosed on the designated websites within the given timeframe. The Company has established procedures on disclosure of inside information to ensure that inside information is promptly identiﬁed, assessed and submitted, where applicable, for the attention of the Board. In case of the occurrence of any significant event that needs to be disclosed, the Company office (office of the Board) will organise the drafting of a report according to the actual conditions and go through the relevant approval procedures according to the Articles of Association and rules and procedures of the Company before disclosing the information.

f. Statement of risk management and internal control: Internal risk control departments of the Company and its subsidiaries carry out risk management and internal control inspection and evaluation at least quarterly, and supervision and audit departments organise and implement risk-oriented internal control comprehensive inspection evaluation at least annually. During the Reporting Period, risk management and internal control inspection of the Company cover the Reporting Period, and the scope of inspection covers all major control aspects (including ﬁnance, business operation, compliance control and risk management function). In particular, the Board considers that the Company has adequacy of resources, staff qualiﬁcations and experience in accounting, internal audit and financial reporting functions, and the training courses received by the staff and relevant budget are also sufficient. The risk management and internal control evaluation results of the Company indicated that the Company has gradually enhanced consciousness on internal control as well as risk prevention from top down, revised internal control manual and realised online publication, further adopted effective measures to strengthen internal control management, and comprehensively increased internal control management level. The Company is not aware of any material deﬁciency, and the internal control of the Company (including ﬁnancial report and compliance procedures according to the Hong Kong Listing Rules) is effective in general.

C.3 Audit Committee

a. The Company has established the Audit Committee. Mr. YE Zheng, an independent non-executive Director, is the chairman of the Audit Committee, and Mr. HUI Chiu Chung, Stephen and Mr. JIN Yong, each an independent non-executive Director, are members of the Audit Committee. Terms of reference of the Audit Committee have been established, and are available on the websites of the Company and the Hong Kong Stock Exchange. The Audit Committee advises on the appointment, re-appointment, termination of the independent auditors and their remuneration, reviews the ﬁnancial statements to be submitted to the Board, and examines the Company's ﬁnancial policies, internal audit system, internal control system and risk management system. As conﬁrmed, none of the members of the Audit Committee had served as a partner or former partner in the Company's existing auditing ﬁrm.

According to the Letter to Issuers released by the Hong Kong Stock Exchange dated 19 December 2014 and relevant amendments to the "Corporate Governance Code" set out in Appendix 14 to the Hong Kong Listing Rules, and in order to improve the corporate governance practice and reinforce the risk management and internal control functions of the Board, the third meeting of the Second Session of the Board held by the Company on 18 March 2016 has resolved to incorporate the risk management function into the scope of authority of the Audit Committee and also to amend the terms of reference of the Audit Committee as appropriate. Such amendment was aim to add and specify the description of risk management function. This resolution has been implemented after the approval by the Board.

b. Please refer to "Report of the Board - Meetings Held by the Special Committees of the Board" of this annual report for information about meetings held by the Audit Committee. Review opinions signed by the members of the Audit Committee were issued at such meetings and submitted to the Board. During the Reporting Period, there was no disagreement between the Board and the Audit Committee.

c. Members of the Audit Committee may engage independent professionals when performing duties. Reasonable costs arising from or in connection with such consultation are borne by the Group. Meanwhile, the Audit Committee appointed the advisory member to assist the Audit Committee in speciﬁc daily routines. The expenses of the Audit Committee are included in the budget of the Group.

d. During the Reporting Period, the Audit Committee held meetings with the auditors twice without the presence of the management members, either in writing or through meeting in person, discussing the audit situations of ﬁnancial reports and the auditors' fees for the year as well as coordinating the work allocation between the internal and external auditors. The Audit Committee considered the adequacy of resources, staff qualifications and experiences, as well as the training programmes provided to the relevant staffs and the budget of the Company's accounting, internal audit and ﬁnancial reporting functions during the Reporting Period. The Audit Committee considers that the Company's management performed their duties and established an effective internal control system. In addition, the Audit Committee also considered the adequacy of the resource of the Company's internal audit function, reviewed and monitored the effectiveness of the internal audit function on a constant basis. According to the Company's internal control mechanism, the Company has established whistle-blowing mechanism, whereby the staff and stakeholders may have a channel, such as online reporting, reporting through letters, meeting with reporters, complaint mail box, to report and complain on their discovered activities that have breached the Company's internal control system. The Audit Committee has reviewed and approved such system.

D Delegation of Power by the Board

a. The Board, the management and the special committees of the Board have clear terms of references. The Articles of Association, the Rules and Procedures for the Shareholders Meetings, the Rules and Procedures for the Board Meetings, and the Working Rules for the President specify clear scopes of duties, authorities and authorisations of the Board and the management.

b. In addition to the Nomination Committee, Audit Committee and Remuneration Committee, the Board has also established the Strategy and Development Committee. The Chairwoman of the Board, Mdm. SUN Lili, serves as the chairwoman of the committee. Mr. JIN Yong, an independent non-executive Director, serves as the vice chairman of the committee. Mr. XIANG Wenwu (the Vice Chairman of the Board), Mr. JIANG Dejun (a Director and the President) and Mr. WU Wenxin (a Director), serve as members of the committee. The Strategy and Development Committee is responsible for studying the long-term development strategies as well as major decisions on capital expenditure, investment and ﬁnancing of the Company. Please refer to "Report of the Board - Meetings Held by the Special Committees of the Board" of this annual report for information about meetings held by the Strategy and Development Committee.

c. All special committees under the Board have clear written scope of responsibilities. The terms of reference of all special committees under the Board specify that such committees should report its decisions or recommendations to the Board.

d. The Board conﬁrms that corporate governance should be joint responsibilities of directors, and corporate governance functions include:

(i) to develop and review the policies and practices on corporate governance of the Company;
(ii) to review and monitor the training and continuous professional development of Directors, Supervisors and Senior

Management;

(iii) to review and monitor the policies and practices on compliance with legal and regulatory requirements of the Company;
(iv) to develop, review and monitor the code of conduct and compliance manual (if any) applicable to employees, Directors and

Supervisors; and

(v) to review the compliance with Corporate Governance Code and disclosure in the Corporate Governance Report of the Company.

E Investor Relations

a. The Company places great emphasis on investor relations. The Senior Management conducts road shows for investors every year to introduce matters that investors may be concerned about, such as development strategies, production and business performance of the Company. The Company office (office of the Board) is responsible for communicating with investors in compliance with regulatory requirements through meetings with, site visits by and setting up email accounts for investors, which enhanced communications with investors.

b. During the Reporting Period, for each substantially separate issue at a general meeting, a separate resolution was proposed. All resolutions were voted by poll to safeguard the interests of all the shareholders of the Company. A meeting notice was delivered to each shareholder at least 45 days (exclusive of the day of the meeting) prior to shareholders meetings.

c. The Chairwoman of the Board hosted the shareholders meetings as the chairman of such meeting. Members of the Board and the Senior Management also attended shareholders meetings and answered questions raised by the shareholders of the Company.

d. During the Reporting Period, the Company has made the following three amendments to the Articles of Association. According to the Company Law and other relevant laws and regulations, as the headquarters of the Information Technology Branch of SINOPEC Engineering (Group) Co., Ltd. (ʕͩʷ๪ʷʈ೻（ණྠ ）ٰ΅Ϟࠢʮ̡ڦࢹ߅Ҧʱʮ̡) ("Information Center"), the Company shall have the business scope covering the business activities to be carried out by the Information Center. According to the responsibility, position and development plan of the Information Center, the relevant contents of the business scope of the Company were added, and the second paragraph of Article 12 of the Articles of Association was revised; in view of the fact that the revisions of the provisions regarding repurchase by a company of its own shares in the Company Law supplements and reﬁnes the circumstances under which a company is allowed to repurchase shares its own shares, Articles 26, 27, 29 and 54 of the Articles of Association were amended; Article 117 of the Articles of Association was amended to be applicable to the current laws and regulations. For details, please refer to the Articles of Association of SINOPEC ENGINEERING (GROUP) CO., LTD. (H shares) issued by the Company on 8 May 2020.

F Company Secretary

a. The company secretary of the Company is recognised by the Hong Kong Stock Exchange as the professional, and is nominated by the Chairwoman of the Board and appointed by the Board. Company secretary is a Senior Management and reports to the Company and the Board. The company secretary of the Company gives opinions on corporate governance to the Board and arranges orientation training and professional development of the Directors.

b. The company secretary of the Company actively participated in professional development training and has taken no less than 15 hours of relevant professional training during the Reporting Period.

G Shareholders' Rights

a. Shareholders who individually or collectively hold 10% or more of the total voting shares issued by the Company may request in writing for the Board to convene an extraordinary shareholders meeting or class meetings. If the Board fails to grant the request to call the meeting according to the Rules and Procedures for Shareholders Meetings, shareholders may call and hold the meeting at their discretion according to laws, and reasonable expenses arising therefrom are to be borne by the Company. The aforesaid provisions are subject to the following conditions: the proposals proposed at the shareholders meeting shall fall within the scope of authorities of the shareholders meetings, with speciﬁed proposals and resolutions, and in compliance with the relevant laws, administrative regulations and the Articles of Association.

b. When the Company holds a shareholders meeting, shareholders who individually or collectively hold 3% or more of the total voting shares issued by the Company may propose a provisional proposal 10 days before the date of the meeting.

c. The eligibility for attending the general meeting, the shareholders' rights and the meeting agenda are clearly stated in the notices to the shareholders of the Company.

d. The Company requires that the company secretary is responsible for establishing an effective communication channel between the Company and its shareholders, setting up a special organisation for contacting shareholders, and passing their opinions and advice to the Board and the management members in a timely manner. Contact details of the Company can be found under the "Investor Center" section on the website of the Company.

(2) Auditors

At the 2019 annual general meeting of the Company held on 8 May 2020, the Company approved the appointment of BDO China Shu Lun Pan Certiﬁed Public Accountants LLP and BDO Limited as the domestic and international auditors of the Company for the year 2020 and authorised the Board to determine their remuneration for the year 2020. As approved at the tenth meeting of the Third Session of the Board, the audit fee for 2020 is RMB4.57 million. The ﬁnancial statement of 2020 was audited by BDO Limited.

During the Reporting Period, BDO China Shu Lun Pan Certiﬁed Public Accountants LLP and BDO Limited did not provide any material non-audit services to the Company.

(3) Other Information about Corporate Governance of the Company

For the composition of the Board, please refer to page 88; for information regarding changes in share capital and shareholdings of substantial shareholders, please refer to page 14 to page 15; for information regarding meetings of the Board, please refer to page 88 to page 89; for the attendance of each Director in Board meetings and Shareholders meetings, please refer to page 89 to page 90; for information regarding the equity interests of Directors, Supervisors and other Senior Management members, please refer to page 72; for information regarding the resume and annual remuneration of Directors, Supervisors and other Senior Management members, please refer to page 108 to page 117.

REPORT OF THE BOARD

The Board is pleased to present the report for the year ended 31 December 2020 for Shareholders' review.

1 Board Composition

As at the date of this annual report, the composition of the Third Session of the Board consists Mdm. SUN Lili (Chairwoman of the Board, appointed on 30 December 2020), Mr. XIANG Wenwu (Vice Chairman of the Board, appointed on 30 December 2020), Mr. JIANG Dejun (appointed on 22 February 2021) and Mr. WU Wenxin, as Directors; and Mr. HUI Chiu Chung, Stephen, Mr. JIN Yong and Mr. YE Zheng, as the independent Directors. The resigned Directors were Mr. YU Renming (Chairman of the Board, resigned on 30 December 2020) and Mr. ZHOU Yingguan (resigned on 30 December 2020).

2 Principal Business Activities

The Group is a leading energy and chemical engineering company in the PRC with strong international competitiveness and can provide domestic and overseas clients with overall solutions for petrol reﬁning, chemical engineering, aromatics, coal chemicals, inorganic chemicals, pharmaceutical chemicals, clean energy, storage and transportation facilities, environmental protection and energy saving, among other industry sectors. The Group is a service provider for the whole life cycle from project planning to project operation and can provide overall industry chain services including engineering consulting, technology licensing, project management contracting, ﬁnancing assistance, EPC (engineering, procurement and construction) contracting, as well as design, procurement, construction and installation, lifting and transportation of large equipment, pre-commissioning and start-up.

The list of the Company's major subsidiaries as at 31 December 2020, together with (among others) details of their principal countries of operation, places of incorporation or establishment and particulars of their issued share capital, is set out in Note 44 to the ﬁnancial statements contained in this annual report.

3 Meetings of the Board

During the Reporting Period, the Company held four 5 Board meetings. The details are as follows:

The ninth meeting of the Third Session of the Board was held in Beijing, the PRC, on 18 February 2020, whereby the following resolutions were considered and approved: proposal on election of chairman, proposal on adjustment of members of the Special Committees of the Board, proposal on application for approval of revision of guidelines on internal control authority.

The tenth meeting of the Third Session of the Board was held in Beijing, the PRC, on 20 March 2020, whereby the following resolutions were considered and approved: the report of the Board for the year 2019, the report on the business operation for the year 2019 and the work arrangements for the year 2020; the report on the operating results, ﬁnancial performance and other relevant matters for the year 2019; independent auditor's audit opinion on the Company's 2019 annual ﬁnancial report; review opinions of Auditing Committee regarding 2019 annual ﬁnancial report and relevant matters; proposal on the audited ﬁnancial statements for the year of 2019; proposal on the 2019 annual report and results announcement; proposal on the environmental, social and governance report for the year 2019; proposal on the business operation plan, investment plan and ﬁnancial budget for the year 2020; the proposed cap for the amount of performance guarantee(s) to be provided by the Company (as the parent company) for the beneﬁt of its subsidiaries for the year 2020; proposal on the ﬁnal dividend distribution plan for the year 2019 and the authorisation to the Board to determine the interim proﬁt distribution plan for the year 2020 to be put forward for approval at the Company's annual general meeting; proposal on change and appointment of independent auditor and authorization to the Board to ﬁx audit remuneration for the year 2020; proposal on 2020 annual business plan of ﬁnancial derivatives; proposal on grant of a general mandate to the Board to repurchase domestic shares and/or H shares to be put forward for approval at the annual general meeting and the class meetings; proposal on grant of a general mandate to the Board to issue domestic shares and/or H shares of the Company to be put forward for approval at the annual general meeting; proposal to expand the business scope of the Company and amend the Articles of Association; proposal to amend the Rules and Procedures for the Meetings of the Shareholders and Rules and Procedures for the Meetings of the Board.

The eleventh meeting of the Third Session of the Board was held in Beijing, the PRC, on 9 June 2020, whereby the proposal on the establishment of Russian Subsidiary was considered and approved.

The twelfth meeting of the Third Session of the Board was held in Beijing, the PRC, on 21 August 2020, whereby the following resolutions were considered and approved: the report on the fulﬁllment of the key targets for the ﬁrst half of 2020 and the report on the work arrangements for the second half of 2020, report on the operating results, ﬁnancial performance and other relevant matters for the ﬁrst half of 2020, audit opinion of the independent auditor on the Company's 2020 interim ﬁnancial report, review opinion of the Audit Committee regarding 2020 interim ﬁnancial report and relevant matters, proposal on audited 2020 interim ﬁnancial report, proposal on 2020 interim report and results announcement, proposal on 2020 interim dividend distribution plan, proposal on the establishment of Singapore Branch.

The thirteenth meeting of the Third Session of the Board was held in Beijing, the PRC, on 30 December 2020, whereby the following resolutions were considered and approved: proposal on resignation of directors, a supervisor and recommendation for appointment of a director; proposal on appointment of chairwoman and vice chairman of the Board; proposal on recommendation for appointment of a non-representative of the employees supervisor; proposal on appointment of president; proposal to convene the ﬁrst extraordinary general meeting for the year 2021.

4 Implementation of Resolutions Approved at Shareholders Meetings by the Board

During the Reporting Period, in accordance with relevant laws and regulations as well as the Articles of Association, all members of the Board diligently implemented the resolutions approved at the Shareholders meetings, and have completed various tasks delegated to them at the Shareholders meetings.

5 Attendance of Board Meetings and Shareholders Meetings

During the Reporting Period, the attendance of each Director of the Third Session of the Board to the Board meetings and Shareholders meetings, and the trainings they received, are as follows:

Board Meetings	Attendance at the
general meeting for the
year 2020 and the 2020
extraordinary
Name	Attend in person	Attend by proxy	shareholders meeting	Trainings
YU Renming (1)	5	0	4	2
SUN Lili (2)	5	0	4	2
XIANG Wenwu (2)	5	0	4	2
JIANG Dejun (3)	0	0	0	0
WU Wenxin	4	1	4	2
ZHOU Yingguan (1)	5	0	4	2
HUI Chiu Chung, Stephen	5	0	4	2
JIN Yong	4	1	4	2
YE Zheng	5	0	4	2

Notes:

(1) Due to work adjustment, Mr. YU Renming and Mr. ZHOU Yingguan ceased to serve as directors of the Company from 30 December 2020.
(2) On 30 December 2020, Mdm. SUN Lili was appointed as Chairwoman of the Third Session of the Board of the Company upon the approval of the thirteenth meeting of the Third Session of the Board of the Company, Mr. XIANG Wenwu was appointed as the vice chairman of the Third Session of the Board of the Company.
(3) On 22 February 2021, Mr. JIANG Dejun was elected as a director of the Third Session of the Board of the Company upon the approval of the ﬁrst extraordinary general meeting of the Company for the year 2021.

6 Meetings held by the Special Committees of the Board

The Board has established four special committees, namely, the Audit Committee, the Remuneration Committee, the Nomination Committee and the Strategy and Development Committee. The Company's management has established four special committees, namely, the Risk Control Committee, the Confidentiality Committee, the QHSE Committee and the Sustainable Development Committee. During the Reporting Period, the Audit Committee held two meetings, the Remuneration Committee and the Nomination Committee each held one meeting. As there are no particular issues that need to be discussed and considered, the Strategy and Development Committee did not convene any meeting during the Reporting Period. The attendance of special committee meetings by members of each committee are as follows:

Name

Number of meetings required to be attended

Number of meetings attended in person

Number of meetings attended by proxy

Audit Committee

YE Zheng	2	2	0
HUI Chiu Chung, Stephen	2	2	0
JIN Yong	2	0	2
Remuneration Committee
YE Zheng	1	1	0
HUI Chiu Chung, Stephen	1	1	0
JIN Yong	1	0	1
Nomination Committee
YU Renming (1)	2	1	0
SUN Lili (2)	0	0	0
XIANG Wenwu (2)	0	0	0
HUI Chiu Chung, Stephen	2	2	0
JIN Yong	2	1	1
YE Zheng	2	2	0
Notes:

(1) Due to work adjustment, Mr. YU Renming ceased to serve as the member of the Nomination Committee of the Company from 30 December 2020.

(2) On 22 February 2021, with the approval of the fourteenth meeting of the Third Session of the Board of the Company, Mdm. SUN Lili was appointed as the chairwoman of the Nomination Committee of the Company, Mr. XIANG Wenwu was appointed as the member of the Nomination Committee of the Company.

Speciﬁc situations of meetings of each committee are as follows:

The third meeting of the Remuneration Committee of the Third Session of the Board was held in Beijing, the PRC, on 19 March 2020, whereby they reviewed the proposal that the unfulﬁllment of the conditions to the second effective phase of the Initial Grant under the H Share Appreciation Rights Scheme;

The third meeting of the Audit Committee of the Third Session of the Board was held in Beijing, the PRC, on 19 March 2020, whereby it reviewed and provided opinion on the following: the audited opinion of independent auditor on ﬁnancial statements of 2019, explanation of appointment of independent auditor and authorisation to the Board to determine audit remuneration for the year 2020, resolution in relation to the 2020 annual business plan for ﬁnancial derivatives, execution of the continuing connected transactions in 2019, description of 2019 annual report of the Company, description of non-competition situation for the year 2019, work report of internal control audit for the year 2019, description of work report of risk management and internal control for the year 2019, description of environmental, social and governance report for the year 2019.

The fourth meeting of the Audit Committee of the Third Session of the Board was held in Beijing, the PRC, on 20 August 2020, whereby it reviewed and provided opinions on the following: audit opinion of the independent auditor on the Company's 2020 interim ﬁnancial report, description on the 2020 interim report of the Company, work report of comprehensive risk management and internal control in the interim of 2020, execution of the continuing connected transactions in the ﬁrst half of 2020.

The third meeting of the Nomination Committee of the Third Session of the Board was held in Beijing, the PRC, on 30 December 2020, whereby it reviewed and provided opinions on the proposal on resignation of directors, resignation of supervisors and recommendation for appointment of a director of the Third Session of the Board, proposal on election of chairwoman and vice chairman, and proposal on resignation of president and recommendation for appointment of president.

7 Performance

The ﬁnancial results of the Group for the year ended 31 December 2020 were prepared in accordance with the IFRS and its ﬁnancial position as at that date and the corresponding analysis are set out from page 36 to page 59 in this annual report.

8 Dividends

In accordance with the Company Law and other relevant laws and regulations, the Company attaches great importance to the reasonable return on investment to investors and ensures the continuity and stability of the Company's proﬁt distribution policy. The Company's distributable proﬁts in the form of cash each year shall be no less than 30% of the net proﬁts attributable to the Company's shareholders in the year, under the circumstances that there are net proﬁts attributable to the Company's shareholders and accumulated undistributable proﬁts, and that the Company's investment plan and cash expenses can be satisﬁed. A decision to declare or to pay any dividends in the future, and the amount of any dividends, will depend on, among other things, the Company's results of operations, cash ﬂows and ﬁnancial condition, operating and capital expenditure requirements, distributable proﬁts as determined under PRC GAAP or IFRS (whichever is lower), the Articles of Association, the Company Law and any other applicable PRC law and regulations and other relevant requirements of the supervisory authorities of the place where the Company is listed.

At the annual general meeting for the year 2019 convened on 8 May 2020, an ordinary resolution was passed to approve the authorisation to the Board to determine the interim proﬁt distribution plan for the year 2020. The dividend distribution plan of RMB0.113 per share (inclusive of applicable tax) for the six months ended 30 June 2020 was approved at the twelfth meeting of the Third Session of the Board convened on 21 August 2020. The dividend distribution plan was implemented.

The ﬁfteenth meeting of the third session of the Board approved the dividend distribution plan for the year ended 31 December 2020. A ﬁnal cash dividend of RMB0.187 (inclusive of applicable taxes) per share would be distributed based on 4,428,000,000 shares (including 1,460,800,000 H shares and 2,967,200,000 domestic shares), being the total share capital of the Company as at 31 December 2020. The above dividend distribution plan will be implemented after being reviewed and approved at the annual general meeting to be held by the Company on 10 May 2021.

The ﬁnal dividend for the year of 2020 will be paid on or before Monday, 19 July 2021 to all Shareholders whose names appear on the register of members of the Company at the close of business on Thursday, 20 May 2021. In order to qualify for the ﬁnal dividend, the holders of H Shares must lodge all share certiﬁcates accompanied by the transfer documents with Computershare Hong Kong Investor Services Ltd. (address: Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen's Road East, Wan Chai, Hong Kong) before 4:30 p.m. on Friday, 14 May 2021 for registration. For the purpose of ascertaining Shareholders who qualify for the dividend, the register of members for H Shares will be closed from Saturday, 15 May 2021 to Thursday, 20 May 2021 (both days inclusive).

In accordance with the Enterprise Income Tax Law of the People's Republic of China (ʕശɛ͏΍ձ਷Άุה੻೼ج) and its implementation regulations, the Company is required to withhold and pay enterprise income tax at the rate of 10% on behalf of the non-resident enterprise Shareholders whose names appear on the register of members for H Shares when distributing the cash dividends. Any H Shares not registered under the name of an individual Shareholder, including HKSCC Nominees Limited, other nominees, agents or trustees, or other organisations or groups, shall be deemed as shares held by non-resident enterprise shareholders. Therefore, enterprise income tax shall be withheld from dividends payable to such Shareholders. If holders of H Shares intend to change their shareholder status, please enquire about the relevant procedures with their agents or trustees. The Company will strictly comply with the law or the requirements of the relevant government authority and withhold and pay enterprise income tax on behalf of the relevant Shareholders based on the register of members for H Shares as at Thursday, 20 May 2021.

9 Major Suppliers and Clients

During the Reporting Period, the total purchases from the top five suppliers of the Group accounted for 11.1% of the total purchases of the Group, of which the purchases from the largest supplier accounted for 6.3% of the total purchases of the Group.

During the Reporting Period, the total sales to the top ﬁve clients of the Group accounted for 60.8% of the total sales of the Group, of which sales to the largest client accounted for 33.0% of the total sales. For details on the Group's relationships with major clients and the risks that the Group's business may face due to such relationships, please see the section headed "Report of the Board - 27 Risk Factors - Risks relating to decreased orders from major clients" in this annual report.

During the Reporting Period, other than the connected transactions with the controlling shareholder, Sinopec Group, and its subsidiaries, as disclosed in the section headed "Connected Transactions" of this annual report, to the knowledge of the Board, none of the Directors, Supervisors and their close associates or any Shareholder holding 5% or more of the share capital of the Company had any interest in any of the above-mentioned major suppliers and clients.

10 Bank Loans and Other Borrowings

The Group had USD25 million (about RMB163 million) loans to the fellow subsidiaries as at the end of the Reporting Period.

11 Fixed Assets

During the Reporting Period, changes to the ﬁxed assets of the Group are set out in Note 17 to the ﬁnancial statements prepared in accordance with the IFRS in this annual report.

12 Donations

During the Reporting Period, the amount of charity donations made by the Group amounted to approximately RMB1.1676 million.

13 Pre-emptive Right

According to the Articles of Association and the applicable PRC laws, the Shareholders are not entitled to any preemptive rights. Therefore, the existing Shareholders cannot request the Company for the right of ﬁrst refusal in proportion to their shareholdings.

14 Issuance of Equity Securities or Debentures

During the Reporting Period, neither the Company nor any of its subsidiaries has issued any equity securities (including securities convertible into equity securities) or debentures.

15 Management Contract

During the Reporting Period, neither the Company nor any of its subsidiaries has entered into any contract by which a person undertakes the management and administration of the whole or any substantial part of any business of the Company or any of its subsidiaries.

16 Equity-Linked Agreements

During the Reporting Period, neither the Company nor any of its subsidiaries has entered into or there subsisted any equity-linked agreement, or any agreement requiring the Company or any of its subsidiaries to enter into the agreement that will or may result in the issuance of shares by the Company.

17 Resignation of Director and Supervisor

The resignation of Directors and Supervisors of the Company during the Reporting Period is set out in the section headed "Directors, Supervisors, Other Members of Senior Management and Employees - 2 Appointment and Resignation of Directors, Supervisors and Other Members of the Senior Management during and after the Reporting Period" in this annual report.

18 Permitted Indemnity Provisions

During the Reporting Period, the Company purchased liability insurance for Directors to reduce their risks in the normal course of performing their duties. Save for this, there has been no permitted indemnity provision being in force for the beneﬁt of any existing directors or the then directors of the Company (whether made by the Company or otherwise) or any associated company of the Company (if made by the Company).

19 Signi cant Investment

During the Reporting Period, the Company has made no signiﬁcant investment (including any investment with a value of 5% or more of the Company's total assets as at 31 December 2020).

20 Accounting Standard

The difference between the main accounting policies adopted by the Company for compilation of 2020 audited consolidated ﬁnancial statement and the main accounting policies for compilation of 2019 audited consolidated ﬁnancial statement are indicated in details in Note 3.1 to the ﬁnancial statements.

21 Retirement and Employee Bene t Plan

Details of the Group's retirement and employee beneﬁt plan are set out in Note 34 to the ﬁnancial statements.

For the disclosures in relation to the employees of the Group, please refer to the section headed "Directors, Supervisors, Other Members of Senior Management and Employees - 7 Employees" in this annual report.

22 Compliance with Laws and Regulations

In 2020, the Group was strictly in compliance with laws and regulations such as the Civil Code of the People's Republic of China,the Company Law of the People's Republic of China, the Contract Law of the People's Republic of China, the Securities Law of the People's Republic of China, the Construction Law of the People's Republic of China, the Tendering/Bidding Law of the People's Republic of China and the Safe Production Law of the People's Republic of China and other applicable environmental policies in China. The Company also continuously increased or improved various systems, established a relatively complete compliance operation mechanism, prevented and avoided the occurrence of major legal risks to the maximum extent, and provided strong compliance guarantee for the Company's operation and development under the existing system.

23 The Directors and Supervisors Interests in Acquiring Shares or Debentures

During the Reporting Period, there has not subsisted any arrangement to which the Company, a subsidiary of the Company, the parent company of the Company or a subsidiary of the Company's parent company is a party and whose objects are to enable directors, supervisors or any of their respective associates of the Company or any of its subsidiaries to acquire beneﬁts by means of acquisition of shares in, or debentures of, the Company or any other body corporate.

24 Interests of Directors and Supervisors in Material Transactions, Arrangements and Contracts of Signi cance

During the Reporting Period, for details of the interests of Directors and Supervisors in material transactions, arrangements and contracts of signiﬁcance, please refer to the section headed "Directors, Supervisors, Other Members of Senior Management and Employees - 5 Contract Beneﬁts of Directors and Supervisors" in this annual report.

25 Change of Auditors

The Company has not changed auditors since the date of preparation for listing to 8 May 2020, when the annual general meeting for the year 2019 was held.

Sinopec Group is a controlling shareholder of the Company, which in turn is a state-owned enterprise under the control of the State-owned Assets Supervision and Administration Commission of the State Council of the People's Republic of China (the "SASAC"). According to the relevant regulations issued by the Ministry of Finance of the People's Republic of China and the SASAC, there are restrictions in respect of the number of years of audit services that an accounting ﬁrm can continuously provide to a state-owned enterprise and its subsidiaries. In accordance with such requirements, the annual general meeting for the year 2019 of the Company has approved the appointment of BDO China Shu Lun Pan Certiﬁed Public Accountants LLP and BDO Limited as the domestic and international auditors of the Company, respectively. For details of the resolution, please refer to the announcement and circular of the Company dated 23 March 2020, and the resolution of the annual general meeting for the year 2019 issued on 8 May 2020.

26 Core Competitiveness Analysis

The Group is a leading energy and chemical engineering company in the PRC. The Group has the legacy of being among very ﬁrst oil reﬁning and petrochemical engineering enterprises established in the PRC in the 1950s. Leveraging on long operating history and sophisticated industry experiences, we have developed the strong execution capabilities in the PRC with respect to engineering and constructing large-scale oil reﬁning, petrochemical and new coal chemicals complexes, etc., which usually include a series of process units and public utilities, and we are highly competitive in the international engineering markets.

The competitive strengths of the Group are particularly reﬂected in the large business scale, strong executive capacity, excellent management and technical team, advanced industrialised proprietary and patented technologies, sound management system, advanced software and equipment, rich and reliable suppliers and subcontractors resources, complete service chain in the technology R&D and licensing, preliminary project consulting, ﬁnancing assistance, engineering, procurement, construction, trial test/commissioning and maintenance services and excellent one-stop engineering service capability.

Given our competitive advantages in industry chain, business chain, technology chain and supply chain, the Group is now a leader in China's oil reﬁning and engineering industry. The Group is also on the cutting edge of the rapidly developing China and international engineering markets.

27 Risk Factors

The global macro-economy situation trend is going down

The business performance of the Group is closely related to the economic situation of the PRC as well as the global economic situation. China's economic development has entered into a new normal, economic growth slowed down. In the beginning of 2020, although the COVID-19 was effectively under control in the PRC, its inﬂuence on the China's economy is yet to be evaluated. Although all countries in the world have adopted various macro-economic policies to eliminate the negative inﬂuence caused by factors such as the slowdown of world economic growth, the economic globalisation has regressed at present, coupled with the anti-globalization wave, with the spread of COVID-19 abroad, the prospect of global economic recovery remained uncertain. The Company's operation may also be adversely affected by various other factors, such as the negative inﬂuence upon overseas refinery/chemical projects brought by discontinuity and unpredictability of international geopolitics as well as uncertainty of international oil price ﬂuctuation, and the negative inﬂuence upon oil product and chemical product demand brought by slowdown of economic growth rate.

Risks brought by changes in market environment

In 2021, all kinds of derivative risks caused by the impact of the epidemic can not be ignored, the global trade is still in severe friction situation, and the factors of instability and uncertainty have increased signiﬁcantly. The global industrial chain and supply chain will become more diversiﬁed and regionalized, the pace of capacity expansion in the reﬁning industry will slow down, the ethylene industrial chain will face excessive pressure, and the integration and substitution of production capacity will accelerate. China is facing an increasingly complex international environment with downward pressure on its economy. The production capacity of newly-built refining and chemical projects in China has been released intensively, and some chemical products have been subject to a situation of excessive supply, which may enter a new platform period after this round of production capacity building. Under the inﬂuence of the peak carbon emission target, the substitution of non-fossil energy is increasing, the development environment of energy and chemical industry will face deep adjustment, the pattern of industry supply and demand, operating entities and market layout will be reconstructed, and the reﬁning and chemical industry will face more harsh state of survival of the fittest. As far as the engineering market is concerned, diversified investment subjects, diversified competition subjects, insufficient market capacity, declining contract beneﬁts and rising execution risks will become the new normal faced by engineering companies for a long time.

Risks relating to changes in policies

(1) Nationalisation, cancellation, seizure, confiscation, suspension and other risks with regard to projects undertaken by us

Turbulent and unstable political situation in the countries where the Group has overseas projects, policy discontinuity due to partisan policy, and government intervention in overseas investments may elevate political risks. In some regions, government nationalisation, cancellation, seizure, conﬁscation, and suspension of reﬁnery projects occur from time to time. Little or even no compensation is paid to investors. Thus, relevant project participants may suffer huge losses. Under such circumstances, the risks relating to exploration of new markets in affected countries are relatively high and this may hinder market expansion of the Group.

(2) Risks relating to host country's inadequate policy and regulation

If the host country's public policies, in particular, security policies, are flawed, for instance, if the regulations on rallies, demonstrations and strikes are imperfect, in the event that certain events occur, project implementation will be directly affected, and even legal proceedings could be initiated. These conditions will indirectly affect any new market exploration in the country hereof.

(3) Risks relating to changes in nancial and legal systems

Changes in value-added tax, income tax, customs tax and other aspects of host countries' ﬁnancial and tax systems will directly affect the economic results of the projects and may reduce the proﬁtability of the project. The Group pays taxes in countries and regions where it operates. It is difficult for the Company to predict changes in tax policies of the host countries or regions, and such policy changes may have a material adverse effect on our proﬁtability and ﬁnancial performance.

Meanwhile, if changes are made in the legal system of the host regions of projects in the Middle East or Middle Asia, such as changes in environmental protection law, investment law, labour law and other relevant law, and if regulations may become restrictive, the execution of our projects will become more difficult and potentially affect the development of new projects in relevant countries. If laws and regulations on environmental protection, safety and health are revised or updated, or standards are raised, the costs of compliance and business operations will be affected.

Risks relating to project delay and budget overview

(1) Risks relating to inaccurate project quotation and preliminary budget

Insufficient accumulation of basic data required for project quotation and budget (man hour, procurement and construction price), coupled with the impact of the epidemic on the global supply chain, inquiry is difficult, may affect the efficiency and accuracy of preparing quotations and budget, which will in turn affect the decision-making of projects and subsequent project implementation. For large projects with higher complexity, particularly the EPC contracting projects and emerging projects of investment-construction-operation integration, some projects have a long cooperative operation period, inaccurate initial project quotations and estimations may cause difficulties in implementing the projects as planned.

(2) Risks relating to sub-contractor management

The Group usually engages sub-contractors to provide assistance in completing projects; however, if the resource distribution of sub-contractors is inadequate, it will delay current project completion and impede undertaking of other projects. Concurrently, the delay in sub-contractors' progress will increase the risk of project delay. In addition, the Group assumes joint liability for subcontracted projects, which means that the Group may be subject to compensation liability due to quality problems of subcontracted projects and may be subject to lawsuits and compensation claims, may undertake joint liability for the on-site security accidents of the sub-contractors and bear the risk of the losses in project performance and damages to company image. It is possible that our business and ﬁnancial status as well as our business operations will be adversely affected by these matters.

(3) Risks relating to regular uctuation of raw material prices for construction

The price of steel, cement and other raw materials used in our domestic and overseas projects fluctuates frequently. Any increase in the price of raw materials will lead to a direct increase in procurement costs for our reﬁning projects. This is especially relevant in the international market where competition is intense, and sub-contractors compete by providing low bids in order to win contracts. This, to some degree, directly leads to a decrease in the contractor's proﬁt. If the price of raw materials increases signiﬁcantly, the risk of completing a project outside the limits of our budget will be elevated.

(4) Risks relating to in ation, including the increase in cost of human resources

The Middle East and Central Asia are the primary target markets of the Group's international business. Currently, we are vigorously developing the regional markets in Southeast Asia. Considering that the economy of areas in such areas as a whole is unstable with high inﬂation rates, this may directly lead to increase in price of sub-contracting and labour markets. Concurrently, due to the ﬂuctuation in the exchange rate of Renminbi, the cost of exported labour services increases, which further increases project costs.

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Sinopec Engineering Group Co. Ltd. published this content on 21 March 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 21 March 2021 10:10:04 UTC.

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SINOPEC Engineering (Group) Co., Ltd. is principally engaged in engineering, procurement and construction (EPC) contracting business. The Company operates its business through four segments. The Engineering, Consulting and Licensing segment is engaged in the provision of design, consulting, research and development, feasibility studies, compliance certification services to oil refining and chemical industries. The EPC Contracting segment is engaged in the provision of integrated engineering, procurement, construction, maintenance and project management services. The Construction segment is engaged in the provision of construction, renovation, expansion, repair and maintenance services and large equipment lifting and transportation services in construction projects. The Equipment Manufacturing segment is engaged in the design, development, manufacture and sales of oil refining equipment and spare parts for facilities including oil refining and chemical facilities.

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Construction & Engineering

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09/05/2024 - Annual General Meeting

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SINOPEC Engineering : 2020 ANNUAL REPORT

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